Not only Vietnam, the world also has a headache with the underground economy

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Not only Vietnam, the world also has a headache with the underground economy

Prime Minister Nguyen Xuan Phuc has just signed an approval of an unspecified economic sector statistical scheme to fully and comprehensively reflect the scope and scale of the economy. The General Statistics Office will measure the test from this year (2019), and officially from 2020.

The "Un-observed Economic" area (NOE) is not only a problem of Vietnam. In the world, economists are still debating how to measure this area. However, they all agree that it has an impact on GDP and other economic data.

NOE is not reflected in official data will make GDP and other indicators become inaccurate. The Organization for Economic Co-operation and Development (OECD) said that this could be a serious problem, especially in emerging and shifting countries.

Quy mô nền kinh tế ngầm so với GDP tại một số quốc gia, theo số liệu của IAW. 

Quy mô nền kinh tế ngầm so với GDP tại một số quốc gia, theo số liệu của IAW năm 2017. 

When it comes to NOE, many people often think about criminal activities, such as smuggling, prostitution or illegal gambling. However, the scope of this area is much wider. In an un-observed Economic Area Handbook issued by OCED, NOE includes underground manufacturing activities (legal but deliberately hiding to avoid tax or regulatory spoils), illegal, non-compliance officially (legal entities, but small-scale, not registered) or self-sufficient in the household.

There are many methods used to measure the size of the economy that has not been observed, both directly and indirectly. They are based on direct surveys, or estimated by macro data (electricity consumption, monetary demand, actual workforce, ...).

Earlier last year, the International Monetary Fund (IMF) published a report "The Economies of the World: What We Learned after 20 Years", studying the development of current measurement methods. and just appeared. New methods, especially macro methods such as CDA (Currency Demand Approach) and MIMIC (Multiple Indicators Multiple Causes), are considered as potential models, from the viewpoint of econometrics. Their results are also quite close to the data obtained from surveys or used by statistical agencies.

The IMF report calculating the size of the economy has not been observed in 158 countries around the world in the 1991-2015 period. Accordingly, on average, this figure is equivalent to 31.9% of GDP worldwide. The highest is Zimbabwe with 60.6%. The lowest is Switzerland with 7.2%.

Overall, the global NOE scale assessment report has declined steadily. This trend was only interrupted in 2008, due to the world financial crisis.

The IMF recognizes that NOE and corruption are more prevalent in tightly controlled economies, but weak management. Meanwhile, this phenomenon is much less in strong economies, effective governance.

Currently, NOE booms in many Southern European economies, most notably Greece, although these activities can only be measured indirectly. According to the 2017 study of the Institute of Applied Economics Research (IAW) at the University of Tübingen (Germany), the scale of Greek NOE is estimated at 21.5% of GDP. This data is in their neighboring countries in Southern Europe, such as Italy and Spain, respectively 19.8% and 17.2%.

Forbes said that unobserved economic activities caused the world's governments to lose trillions of dollars each year. Some observers even claim that NOE is currently the world's largest economy.

"Those involved in economic activity have not been observed without paying taxes, but they produce products like normal companies," said Cristina Terra, Professor of Economics at the Essec School of Business (France). Wall Street Journal. She said that this is an important issue, because "for some countries, it involves budget deficits, when the government fails to collect taxes. If these entities become official, they will have to pay taxes. Another reason is that they have to restrain their activities, because the development is too big to attract the attention of the government, and they cannot access credit markets.

So when a country has a high NOE rate, the economy will also be curbed, she concluded.

Ha Thu

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