An Ordinary Least Squares Approach Measuring the Impact of Factors Affecting the Underground Economy of Bangladesh and Their Implications in the Context of the Country’s Supply Chain

Abstract

The underground economy, also known as the shadow, informal, or unobserved economy, operates beyond government oversight, encompassing legal and illegal activities. Its substantial size, estimated at 36.4% of Asia's GDP, prompts examination of its determinants and policy implications. This study focuses on Bangladesh, aiming to identify factors influencing the underground economy. Using data from 2000 to 2020, the study employs Ordinary Least Squares analysis with variables including inflation, unemployment, internet users, GDP growth, tax revenue, economic freedom index, and population growth. Findings reveal that the size of underground economy of the country has significant positive relationships with inflation, internet users and tax revenue. Implications for Bangladesh's supply chain include inflation driving up costs, internet users affecting online commerce, and tax revenue influencing formalization efforts. Policymakers and stakeholders can use these insights to promote transparency and reduce the underground economy's adverse impacts.