Summary
The shadow economy existed in all countries in the world; the size is relatively larger in less developed countries. Studies conducted around the world show that a large portion of economic activities remain hidden and uncovered from the official statistics. It is a common phenomenon in any economy, and there is no exception to the Malaysia economy. The aim of this paper is to re-estimate the size of shadow economy in Malaysia for the past over five decades; and further to examine whether the level of economic development, the stages of financial development, the tax burden, the inflation rate, and the unemployment rate are all major drivers of the size of Malaysia’s shadow economy.
