Estimating Informal Economic Activity through Import- Income Gaps: A Structural Approach Applied to Kosovo and Albania

Session

Management Business and Economics

Description

This paper introduces a groundbreaking macroeconomic approach for assessing the size of the informal economy by examining the gap between the value of imported consumer products and the officially documented income streams, such as wages, remittances, and transfers. Focusing on Kosovo and Albania—two nations in the Western Balkans that significantly depend on remittances and feature a substantial informal sector—this model leverages publicly available macroeconomic data to estimate the level of informal economic activity. The proposed method is embedded within the current literature on shadow economy estimations and serves as a complementary option to traditional structural equation models and labor force surveys. The paper presents a robust theoretical basis, offers conceptual rationale, and conducts a comparative analysis with pertinent literature to contextualize this method within the larger framework of development economics and the challenges of institutional quality. This framework could prove to be a vital tool for policymakers and development organizations operating in regions with limited data resources.

Keywords:

Macroeconomic approach, Informal economy, Imported consumer products, Remittances

Proceedings Editor

Edmond Hajrizi

ISBN

978-9951-982-41-2

Location

UBT Lipjan, Kosovo

Start Date

25-10-2025 9:00 AM

End Date

26-10-2025 6:00 PM

DOI

10.33107/ubt-ic.2025.418

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Oct 25th, 9:00 AM Oct 26th, 6:00 PM

Estimating Informal Economic Activity through Import- Income Gaps: A Structural Approach Applied to Kosovo and Albania

UBT Lipjan, Kosovo

This paper introduces a groundbreaking macroeconomic approach for assessing the size of the informal economy by examining the gap between the value of imported consumer products and the officially documented income streams, such as wages, remittances, and transfers. Focusing on Kosovo and Albania—two nations in the Western Balkans that significantly depend on remittances and feature a substantial informal sector—this model leverages publicly available macroeconomic data to estimate the level of informal economic activity. The proposed method is embedded within the current literature on shadow economy estimations and serves as a complementary option to traditional structural equation models and labor force surveys. The paper presents a robust theoretical basis, offers conceptual rationale, and conducts a comparative analysis with pertinent literature to contextualize this method within the larger framework of development economics and the challenges of institutional quality. This framework could prove to be a vital tool for policymakers and development organizations operating in regions with limited data resources.