Do disease epidemics force economic activity underground? International evidence

Abstract

This article studies the impact of disease epidemics on the worldwide prevalence of the shadow or the underground economy. The informal sector has low entry barriers and provides an easy short‐term option for the supply of goods and services during epidemics when traditional supply lines are cut or strained. Furthermore, the enforcement resources might be directed elsewhere during epidemics, lowering the expected costs of shadow operations. Using data for over 125 nations, we find that the incidence of epidemics positively and significantly contributes to the spread of the underground sector. These findings withstand a series of robustness checks.

Managing the risk of COVID‐19 via vaccine passports: Modeling economic and policy implications

“…Another unintended consequence is likely to be the impact on underground markets. Consumers who are unwilling or unable to obtain passports might lead to underground businesses (clandestine bars that do not monitor passport compliance) or underground vendors of fake passports (see Berdiev et al, 2021 ).…”

“…Admittedly, this is a very simple consideration of the underlying demand uncertainty. Other more sophisticated scenarios may be considered, and we will consider one extension in the subsequent section.15 In the special case, ρ 0 = 0 when the demand probability is unaffected by the passport supply probability.16 Governments could, of course, subsidize the price and it may even be set to zero.17 It is also possible that an underground market emerges for vaccine passports that would undermine the credibility and efficacy of genuine/ legitimate passports (also seeBerdiev et al, 2021).18 From textbook economics, for exchange, a > A. However, due to the demand uncertainty, ρ, discussed above, it is possible that the market demand size (a) might go down.19 It is possible, however, that the demand might in fact increase.In that case, the price would increase but the quantity effect would be unclear.…”

“…17 17 It is also possible that an underground market emerges for vaccine passports that would undermine the credibility and efficacy of genuine/legitimate passports (also see Berdiev et al, 2021). …”

Shock determination in a two‐stage decision‐making model: The case of COVID‐19 in Colombia

“…From multilateral organizations such as the United Nations (UN), World Health Organization (WHO), Food and Agriculture Organization (FAO), International Labor Organization (ILO), the International Fund for Agricultural Development (IFAD), 19 the World Bank Group, 20 government finance departments or ministries, health national institutes, central banks, pharmaceutical laboratories, research centers, to universities, all have dedicated efforts to comprehend and lessen the effects of COVID‐19. For instance, the works of Berdiev et al ( 2021 ), Goel, Nelson, and Goel ( 2021 ), Barro et al ( 2020 ), Ludvigson et al ( 2020 ), Chudik et al ( 2020 ), and McKibbin and Fernando ( 2020 ), to mention some, have studied the impacts of COVID‐19 on the global economy and other impacts such as on corruption and underground economy. However, in this work, we take a different path.…”

“…The COVID-19 produced factory closures in China and everywhere else that lead to a disruption in the supply chains of parts, raw materials, commodities such as oil, and goods and services (Gil-Alana & Monge, 2020;Maital & Barzani, 2020;McKibbin & Fernando, 2020;Weder di Mauro, 2020), and unemployment (Brinca et al, 2020). This created shortages of goods and services, increased -up to some extent-undergrown economic activity as suggested by Berdiev et al (2021), and, as a result, prices began to rise. On the demand side, falling exports, consumers cutting back on their spending, and firms reducing capital goods purchases and residential investment, among others, caused a significant Gross Domestic Product contraction and a downward pressure on the price level.…”