Innovation and Underground Entrepreneurship

Posted: 26 Mar 2016 Last revised: 19 Apr 2016

See all articles by Rajeev K. Goel

Rajeev K. Goel

Illinois State University - Department of Economics

James W. Saunoris

Eastern Michigan University

Xingyuan Zhang

Okayama University

Date Written: 2015


This paper examines the impact of innovation on the underground economy, focusing on differences between informal entrepreneurship and the overall shadow economy. Using cross-national data and measuring innovative activity alternately by patent grants and patent applications, results show that increases in innovative activity spur informal entrepreneurship. The effects of innovation on the overall shadow economy are insignificant. Further, general improvements in government effectiveness seem more effective in checking the underground sector than specific initiatives related to minimum wages or taxes. Transition countries, ceteris paribus, have lower informal entrepreneurship, but higher overall underground economy.

Suggested Citation

Goel, Rajeev K. and Saunoris, James W. and Zhang, Xingyuan, Innovation and Underground Entrepreneurship (2015). Journal of Technology Transfer, Vol. 40, No. 5, pp.800-820, 2015, Available at SSRN:

Rajeev K. Goel (Contact Author)

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States

James W. Saunoris

Eastern Michigan University ( email )

Eastern Michigan University
Ypsilanti, MI 48197
United States

Xingyuan Zhang

Okayama University ( email )

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