Shadow Economy in the Regions of the Russian Federation and the Ukraine

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The aim of this paper is to determine shadow economy on regional level in connection with quality of life. The paper focuses on shadow economy’s regional differences in two countries: the Russian Federation and the Ukraine. The research methods are factor analysis and MIMIC modeling. Using these methods, we conducted a factor analysis of the relationships of quality and standard of living in regions of Russian Federation for the years 2002–2013 and in Ukraine for the years 2004–2013 in the same indices of 17 sections. The factors most common for the two countries are the demographic factor and the criminogenic factor, but the significant differences are in the standard of living monetary support factor. In Russia, monetary income and formal employment have shown a weak correlation, while in the Ukraine they are closely related. The demographic indices for the quality of life are significantly affected by the ethno-socio-cultural factors; therefore, their application in the analysis of correlations between the various manifestations of shadow economy is quite limited. Finally, the fact that the indices for the standard and quality of living can be regularly explained by the influence of various factors shows that there is a gap between the economic and societal components in the functioning of the two states. Using results of factor analysis, the MIMIC model was developed. The results point out that the level of shadow economy in Russian Federation varies from 48 to 62% from GRP at considered regions during the years 2000–2013.