Estimation of the Black Economy of Pakistan through the Monetary Approach

In the recent years the “black economy” has held immense attraction for academics as well as policy-makers. This is because the presence of the black economy is responsible for distortions in the official estimates of macro-economic variables like income generation, employment, rate of inflation, etc., and thus the possible effect on the economic policies cannot be ascertained properly. It, therefore, becomes imperative to investigate this area of research. Researchers have defined the underground economy in alternative ways. The underground economy defined by varied names like black, shadow, hidden, informal, clandestine, second, parallel economy has been divided in four categories for the use of a standard basis of classification [Feige (1990)].