Using the currency demand approach size and development of the Colombian shadow economy are estimated over the period from 1976 to 2002. In the 70s the size fluctuated around 20% of official GDP and rose to 50% in the 90s. The most important factors driving the shadow economy are unemployment and taxation. Analyzing the interaction between shadow and official economy, the shadow economy has a positive effect on the official one. Average growth rate of real per capita GDP is 1.11% between 1976 and 2002 and the shadow economy explains on average between 0.09 and 0.27 of this growth.
Colombian shadow economy currency demand method taxation unemployment interaction between the shadow and official economy