Skip to main navigation menu Skip to main content Skip to site footer

Shadow Economy and its Impact on Demand at the Investment Market of the Country



Objective: The objective of this research is to study the link between the drivers of  the shadow economy and demand level at the investment market.

Research Design & Methods: Based on the Shapiro-Wilk test, the normality of capital investment volumes distribution and European Union Countries’ and Ukraine’s shadow economy level are evaluated. Spearman and Shapiro-Wilk tests are used to identify the most relevant indicators of impact.

Findings: Based on the calculations of the standard error, significance criterion of the defined regression equation parameters the empiric econometric model of the regression equation regarding the capital investment dependence on their formation factors at the investment market is formed. The analysis regarding dynamics of the capital investment volumes and shadow economy level change in Ukraine and European Union Countries’ during 2010-2016, shows that there is an inverse link between them – the shadow economy growth has a negative impact on the capital investment volume.

Implications & Recommendations: This research proves the significant influence of the shadow economy on the demand level at the investment market. The results of the study underline the necessity to review the current state policy regarding stimulation of the demand at the investment market from the viewpoint of the most relevant shadow drivers.

Contribution & Value Added: The scientific contribution of the paper is that existing research on the impact of shadow economy on the level of economic development of the countries remains fragmented, as well as studies assessing its effect on the country's investment attractiveness. The econometric model constructed may provide some insight into better understanding of the most influential factors affecting the country's investment attractiveness and the immediate response to it.


shadow economy, investment activities, money laundering, legalistaion, corruption



  1. Abed, G.T., & Davoodi, H.R. (2002). Corruption, Structural Reforms, and Economic Performance. Governance, Corruption & Economic Performance, International Monetary Fund, Washington D.C., 489-537.
  2. Abror, Q.A. (2015). Effects of shadow economy on foreign direct investment. Proceeding – Kuala Lumpur International Business, Economics and Law Conference, 6(3), Hotel Putra, Kuala Lumpur, Malaysia.
  3. Addison, T., & Heshmati, A. (2003). The New Global Determinants of FDI Flows to Developing Countries. World Institute For Development Economics Research WIDER, Discussion Paper No. 2003/45.
  4. Al-Sadig, A. (2007). The effects of corruption on FDI inflows. The Cato Journal, 29, 267.
  5. Asiedu, E. (2006). Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability. World Economy, 29, 63-77.
  6. Bilan, Y., Korauš, A., Simionescu M., & Schönfeld, J. (2017). The impact of monetary variables on the economic growth and sustainable development: Case of selected countries. Journal of Security and Sustainability Issues, 6(3), 383-390.
  7. Bilan, Y., Mishchuk, H., Samoliuk, N., & Streimikiene, D. (2018). Income Inequality and its Consequences within the Framework of Social Justice. Problemy Ekorozwoju – Problems of Sustainable Development, 13(2), 131-138.
  8. Bilan, Yu., Moroz, S., Nagyova, L., Horska, E., & Polakova, Z. (2017). The current state and prospects of trade relations between Ukraine and the European Union: the Visegrad vector. Economic Annals-XXI, 163(1-2(1)), 14-21.
  9. Bobenič Hintošová, A., Bruothová, M., Kubíková, Z., & Ručinský R. (2018). Determinants of foreign direct investment inflows: A case of the Visegrad countries. Journal of International Studies, 11(2), 222-235.
  10. Cheba, K., & Szopik-Depczyńska, K. (2017). Multidimensional comparative analysis of the competitive capacity of the European Union countries and geographical regions. Oeconomia Copernicana, 8(4), 487-504.
  11. Cichocki, S., & Tyrowicz, J. (2010). Shadow employment in post-transition – Is informal employment a matter of choice or no choice in Poland?. The Journal of Socio-Economics, 39(4), 527-535.
  12. Cleeve, E. (2008). How Effective Are Fiscal Incentives to Attract FDI to Sub-Saharan Africa?. The Journal of Developing Areas, 42, 135-153.
  13. Damoska Sekuloska, J. (2018). Causality between foreign direct investment in the automotive sector and export performance of Macedonian economy. Equilibrium. Quarterly Journal of Economics and Economic Policy, 13(3), 427-443.
  14. Demirhan, E., & Masca, M. (2008). Determinants of Foreign Direct Investment Flows. Prague Economic Papers, 4, 356-369.
  15. Djalilov, K., Lyeonov, S., & Buriak, A. (2015). Сomparative studies of risk, concentration and efficiency in transition economies. Risk Governance & Control: Financial Markets & Institutions, 5(4(1)), 177-186.
  16. Do, M.H., & Park, S.C. (2018). New Rural Development and hierarchical governance in Vietnam: Impacts of government support on rural households’ income using a hierarchical linear modelling. Agris On-line Papers in Economics and Informatics 10(4), 3-15.
  17. Egger, P., & Winner, H. (2005). Evidence on Corruption as an Incentive for Foreign Direct Investment. European Journal of Political Economy, 21(4), 932-952.
  18. Enste, D.H. (2015). The shadow economy in industrial countries. IZA World of Labour 2015, 127,
  19. -10.
  20. Fernandes, A.J.L. (2018). Transnational banks’ influence on the development of the economy and the financial sector of developing countries (on the example of Poland, Brazil, Turkey). Marketing and Management of Innovations, 3, 253-259.
  21. Formankova, S., Trenz, O., Faldik, O., Kolomaznik, J., & Vanek, P. (2018). The future of investing-sustainable and responsible investing. Marketing and Management of Innovations, 2, 94-102.
  22. Greco, F. (2018). Resilience: Transform adverse events into an opportunity for growth and economic sustainability through the adjustment of emotions. Business Ethics and Leadership, 2(1), 44-52.
  23. Hubert, P.J., & Phanindra, V.W. (2004). Determinants of foreign direct investment: empirical evidence from EU accession candidates. Applied Economics, 36, 505-509.
  24. Ipatov, B.G., McClelland, B., Williamson, P., Khanfar, N., & Cavico, F.J. (2018). An Analysis of the Relationship between Regulatory Control and Corruption based on Product and Market Regulation and Corruption Perceptions Indices. Business Ethics and Leadership, 2(3), 6-20.
  25. Ipatov, M., & Grebeniuk, N. (2018). Assessing the level of adaptation of employees to the transformation processes in the company. Business Ethics and Leadership, 2(1), 106-115.
  26. Kostyuchenko, N., Starinskyi, M., Tiutiunyk, S., & Kobushko, Ia. (2018). Methodical Approach to the Assessment of Risks Connected With the Legalization of the Proceeds of Crime. Montenegrin Journal of Economics, 14(4), 021-041.
  27. Krumplyte, J. (2008). Šešelines ekonomikos samprata ir priežasciu analize. Ekonomika ir Vadyba: Aktualijos ir Perspektyvos, 4(13), 238-250.
  28. Lambsdorff, J. Graf, & Cornelius, P. (2000). Corruption, Foreign Investment and Growth, The Africa Competitiveness Report 2000/2001. Harvard University: Oxford University Press, (pp. 70-78).
  29. Leonov, S.V., & Isaieva, O.V. (2014). Determinants of government bond spread in Ukraine and new EU members, Actual Problems of the Economics, 5, 416-425.
  30. Lyeonov, S.V., Vasylieva, T.A., & Lyulyov, O.V. (2018). Macroeconomic stability evaluation in countries of lower-middle income economies. Scientific Bulletin of National Mining University, 1, 138-146.
  31. Melnyk, L., Sineviciene, L., Lyulyov, O., Pimonenko, T., & Dehtyarova, I. (2018). Fiscal decentralization and macroeconomic stability: the experience of Ukraine’s economy. Problems and Perspectives in Management, 16(1), 105-114.
  32. Morrissey, O., & Udomkerdmongkol, M. (2012). Governance, Private Investment and Foreign Direct Investment in Developing Countries. World Development, 40, 437-445.
  33. Nazarczuk, J.M., & Krajewska, A. (2018). Local determinants of foreign direct investment in Poland: the role of relative distance. Equilibrium. Quarterly Journal of Economics and Economic Policy, 13(1), 73-88.
  34. Nunes, P., Serrasqueiro, Z., & Matos, A. (2017). Determinants of investment in fixed assets and in intangible assets for high-tech firms. Journal of International Studies, 10(1), 173-179.
  35. Omidi, M., Min, Q., & Omidi, M. (2017). Combined Effect of Economic Variables on Fraud,
  36. a Survey of Developing Countries. Economics and Sociology, 10(2), 267-278.
  37. Rahimi, F.A.F. (2016). The impact of international forces withdrawal on investment in Herat, Afghanistan. Journal of International Studies, 9(1), 44-55.
  38. Rausser, G., Strielkowski, W., Bilan, Y., & Tsevukh, Y. (2018). Migrant remittances and their impact on the economic development of the Baltic States. Geographica Pannonica, 22(3), 165-175.
  39. Riedl, A. (2009). Location factors of FDI and the growing services economy. Economics of Transition, 18(4), 741-761.
  40. Schneider, F. (2007). Shadow economies and corruption all over the world: New estimates for 145 countries. Open-Assessment E-Journal, 1, 1-66.
  41. Skare, M., & Porada-Rochoń, M. (2019). Financial and economic development link in transitional economies: a spectral Granger causality analysis 1991-2017. Oeconomia Copernicana, 10(1),
  42. -35.
  43. Smarzynska, B.K., & Wei, S. (2000). Corruption and the Composition of Foreign Direct Investment: Firm-Level Evidence. World Bank Discussion Paper Series no. 2360. Washington, DC: World Bank.
  44. Sookram, S., Watson, P.K., & Schneider, F. (2009). Characteristics of households in the informal
  45. sector of an emerging economy. Applied Economics, 41(27), 3545-3559.
  46. Špička, J. (2018). Dynamic effects of public investment support in the food and beverage industries. Agris On-line Papers in Economics and Informatics, 10(1), 91-110.
  47. Teobaldelli, D., & Schneider, F. (2013). The influence of direct democracy on the shadow economy. Public Choice, 157(3), 157-543.
  48. Udomkerdmongkol, M., Görg, H., & Morrissey, O. (2006) Foreign Direct Investment and Exchange rates: A case study of U.S. FDI in emerging countries. University of Nottingham, Discussion Papers in Economics, Discussion Paper No. 06/05.
  49. Vasilyeva, T., Sysoyeva, L., & Vysochyna, A. (2016). Formalization of factors that are affecting the stability of Ukraine banking system. Risk Governance & Control: Financial Markets & Institutions, 6(4), 7-11.
  50. Vasilyeva, T.A., Lunyakov, O.V., & Leonov, S.V. (2013). Analysis of internal and external imbalances in the financial sector of Ukraine’s economy. Actual Problems of the Economics, 12(150), 176-184.
  51. Vasylieva, T., Lyeonov, S., Lyulyov, O., & Kyrychenko, K. (2018). Macroeconomic stability and its impact on the economic growth of the country. Montenegrin Journal of Economics, 14(1), 159-170.
  52. Wei, S.-J. (2000). How Taxing is Corruption on International Investors?. Review of Economics and Statistics, 82, 1-11.
  53. Williams, C.C., & Nadin, S. (2012) Joining up the fight against undeclared work in Europe. Management Decision, 50(10), 1758-1771.
  54. Zdziarski, M., Światowiec-Szczepańska, J., Troilo, M., & Małys, Ł., (2017). Adventurous Foreign Direct Investment. Journal of Management and Business Administration, 25(2), 117-139.


Download data is not yet available.