Shadow Economy and its Impact on Demand at the Investment Market of the Country

Abstract

Objective: The objective of the research is to study the link between drivers of the shadow economy and the demand level on the investment market. Research Design & Methods: Based on the Shapiro-Wilk test, the normality of capital investment distribution and the shadow economy level of the European Union countries and Ukraine are evaluated. Spearman and Shapiro-Wilk tests are used to identify the most relevant indicators of impact. Findings: The analysis of the changing dynamics regarding the capital investment volume and the shadow economy level in Ukraine and the EU countries during 2010-2016 shows that there is an inverse link between them – the growth of the shadow economy has a negative impact on the capital investment volume in the country. Implications & Recommendations: This research proves significant influence of the shadow economy on the demand level on the investment market and underlines the necessity to review the current state policy to stimulate the demand on the investment market from the viewpoint of the most relevant shadow drivers. Contribution & Value Added: The scientific contribution of the article is that existing research on the impact of shadow economy on the economic development of countries remains fragmented, as well as studies assessing its effect on a country’s investment attractiveness. The constructed econometric model may provide some insight into better understanding of the most influential factors affecting a country’s investment attractiveness and the immediate response to it.