The size of South Korea’s underground economy accounted for 19.8 percent of the country’s gross domestic product (GDP) in 2015, dropping by almost 10 percentage points from 24 years ago, showed a recent study by the International Monetary Fund.
According to an IMF working paper on “Shadow Economies Around the World: What Did We Learn Over the Last 20 Years” published last month, Korea’s underground economy is estimated to have accounted for 19.83 percent of its GDP in 2015, down from 29.13 percent in 1991.
In the paper, the IMF defined underground, or shadow economy to include all economic activities that are “hidden from official authorities for monetary, regulatory, and institutional reasons,” such as avoiding paying taxes and governmental bureaucracy. It excludes illegally produced goods and services such as from drug dealing and other criminal activities as well as activities for self-consumption purposes.
According to the paper, Korea’s underground economy had gradually declined since 1991 but it rebounded to 30 percent in 1998 in the wake of the Asian fiancial crisis. Soon it started to shrinking and reached 23.86 percent in 2008 when the global financial crisis broke out. The falling trend has continued since then to reach below the 20 percent level in 2015. The significant drop comes amid the government’s efforts to crack down on illegal economic activities such as tax dodging.
Shadow economy accounted for an average of 27.78 percent of GDP of all 158 countries in 2015, the paper showed, down from an average of 34.51 percent in 1991.
The largest underground economy was Zimbabwe with 67 percent and the lowest one was Switzerland with 6.94 percent. The figures for Georgia (53.07 percent), Nigeria (52.49 percent), Gabon (52.01 percent), and Myanmar (50.99 percent) were all above 50 percent while those for Australia (8.1 percent), Austria (9.01 percent), Canada (9.42 percent), Germany (7.75 percent), Ireland (9.58 percent), the Netherlands (7.83 percent), New Zealand (8.97 percent), the United Kingdom (8.32 percent), and the United States (7 percent) were below 10 percent.
Among Asian countries, the size of Japan’s underground economy was smallest with 8.19 percent against its GDP. Singapore (9.2 percent), Vietnam (14.78 percent), China (12.11 percent), and Hong Kong (12.39 percent) also had relatively low figures.
By Yoon Won-sup and Lee Eun-joo
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