SIZE AND IMPLICATION OF UNDERGROUND ECONOMY IN ROMANIA - A MIMIC APPROACH

Since the economic crisis affected the real economy in Romania, the official GDPdeclined by almost 5 percent in 2009 compared with 2008, 1.3 percent in 2010 against the previousyear and unemployment increased too. In 2011 a moderate growth of the GDP is expected butunemployment will further increase. Against this background the extent of the underground economy inRomania and its development over time are once again the subject of intense debate, as many peoplewill attempt to make up for loss of income in the official economy through greater participation in theunderground economy.The objective of this paper is to estimate the size of the underground economy in Romania by using theMultiple Indicators Multiple Causes (MIMIC) method. The MIMIC approach is based on the idea thatthe underground economy is not a directly observable measure, but it is possible to approximate itusing quantitatively measurable causes of working in the underground economy and using indicatorsin which underground economic activities are reflected. In addition, the paper aims at clarifying towhat extent the variables explain the size of the underground economy in Romania.