GDP and Underground Economy (UE): A Literature Review on the Mistaken Significance of Underground Economies

Abstract

Author(s): Huang, Jessie | Abstract: The significance of undergroundeconomies relative to a country’s calculationof GDP was further examined under theassumption of the inclusion of them whenperforming this computation. Challengingthe current methodology of GDP and howit’s calculated, as done traditionally throughassessing and measuring the followingsectors of a country’s economy: privateconsumption, gross investment, governmentinvestment, government spending, and netexports, the underground economy proves tobe a worthy cause of further analysis, as it’sassignment to any one sector may not beappropriate. Though illicit activitiesconstituting the underground economy provehard to examine with any level of certainty,the substantial benefits of inclusion delivergreat advantages to a country. It is fromthese findings that have surfaced a greaterissue with what is standard practice whencalculating GDP. Though the undergroundeconomy is filled with a great level ofuncertainty, findings suggest including it inthe measure of GDP, but done so withcaution, as there are risks of jumping toconclusions.