Some Alternative Estimates of Underground Economies in 12 New EU Member States

This paper investigates alternative estimates of the Non-Observed Economy (NOE) for 12 new European Union (EU) Member Countries during the transition period by an exploration of the reliability of the Gross Domestic Product (GDP) figures. The authors analyze several methodologies applied in various countries performing the Eurostat (2005) Pilot Projects on the Exhaustiveness (PPE); having in mind the different methods of measuring the shadow economy, the authors examine the relationship between selected economic aggregates to estimate the size and growth of the unrecorded sector using the Latent Variable Method to validate - as far as available - the official data, and to quantify the NOE phenomenon. The empirical results obtained by using this different estimation method do not reveal the same convergence as the national statistical offices have shown. These experiences include, to various degrees, the lack of coverage being dependent on the different types of underground economic activities.