The shadow economy refers to economic activities that are hidden from official government records. In simple terms, the shadow economy means hidden money. People in the shadow economy don’t pay taxes.
They don’t follow rules. This makes it hard for the government to get money for schools or hospitals. It also makes it unfair for businesses that follow the rules. Calculating the shadow economy is challenging because it’s deliberately hidden. Researchers use various methods.
One common way is the “monetary method”. This method looks at the amount of cash in circulation. The idea is that hidden transactions often use cash to avoid being traced.
Based on recent data provided by the EY Global Shadow Economy Report 2025, China has the largest shadow economy in the world in terms of value. In this article, we’ll take a look at the biggest shadow economies globally.
List of the Top 10 Largest Informal Economies in the World
According to the EY Global Shadow Economy Report 2025, here are the top 10 biggest shadow economies in the world:
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Shadow Economy Value (USD)
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Shadow Economy % of GDP in 2023
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United States
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1. China
China has the largest shadow economy in the world. Its value is estimated at a massive $3.6 trillion. This makes up 20.3% of its total economy. Many people work in informal jobs. These jobs are often in services, like drivers or roadside repairmen. Since 2004, the number of informal workers has nearly doubled.
This growth shows a large part of the economy operates outside the official view. This means less tax money for the government. It also means workers might not have proper protections. China’s large population and fast growth contribute to this big informal sector.
2. United States
The United States ranks second with a shadow economy worth $1.4 trillion. However, this is only 5.0% of its total GDP. This percentage is quite low compared to other top countries. The large value comes from the sheer size of the U.S. economy.
Activities include undeclared income and small, unregistered businesses. States with lower official economic output and more rules often have bigger hidden economies. Even though it’s a small part of the overall economy, $1.4 trillion is a huge amount of money. It represents economic activity that avoids taxes and regulations.
3. India
India holds the third spot for the largest shadow economy. Its value is estimated at $931 billion. This represents a significant 26.1% of India’s GDP. A large portion of India’s workforce is in the informal sector. Many people work in small, unorganised businesses.
These often involve cash transactions. Such activities are not officially recorded. This means the government misses out on tax revenue. It also means less social security for workers. The informal economy provides jobs for many people, but it lacks formal protections.
4. Brazil
Brazil’s shadow economy is the fourth largest, valued at $448 billion. This makes up 20.6% of its GDP. Brazil has a notable informal sector. It includes many small businesses and individual workers who operate without formal registration.
High taxes and complex rules can push businesses into the informal economy. This allows them to avoid costs and regulations. The large size of Brazil’s economy means even a moderate percentage results in a high absolute value. This impacts government revenue and fair competition.
5. Indonesia
Indonesia ranks fifth with a shadow economy worth $326 billion. This accounts for 23.8% of its national economy. A significant part of Indonesia’s population works in informal jobs. These jobs are often in small-scale trade, services, and agriculture.
Many transactions are cash-based and not reported. This sector provides income for many people. However, it also means less tax collection for the government. It affects the overall economic planning and development of the country.
6. Mexico
Mexico’s shadow economy is estimated at $320 billion, placing it sixth. This represents 17.9% of its GDP. Many people in Mexico work in the informal sector. This includes street vendors, construction workers, and domestic helpers.
They often operate without permits or formal contracts. This helps them avoid taxes and strict labour laws. However, it also means they lack benefits and legal protection. The large informal sector is a common feature in many developing economies.
7. Germany
Germany has the seventh-largest shadow economy by value, at $308 billion. However, this is only 6.8% of its GDP. This percentage is quite low for a major economy. The large value is due to Germany’s overall economic size.
Activities in the shadow economy can include undeclared work or small, untaxed services. Even in highly developed countries, some economic activity remains hidden. This can be due to high taxes or complex regulations.
8. Japan
Japan’s shadow economy is valued at $282 billion, making it the eighth largest. It accounts for 6.7% of Japan’s GDP. Like Germany, Japan has a relatively small shadow economy as a percentage of its official economy.
However, its large overall economy means the absolute value is still very high. Hidden activities might include small, unreported cash jobs or services. Even with strong regulations, some informal transactions occur. This impacts government revenue and official economic data.
9. Russia
Russia’s shadow economy is estimated at $265 billion, ranking ninth. This makes up 13.1% of its GDP. The informal sector in Russia is a notable part of its economy. It can involve various activities, from unregistered businesses to undeclared employment.
Factors like regulations and tax burdens can influence its size. The shadow economy provides a way for some people to earn income. But it also means the government loses out on significant tax revenue.
10. France
France is tenth on the list with a shadow economy worth $205 billion. This represents 6.7% of its GDP. Similar to Germany and Japan, France has a relatively low percentage of its economy in the shadows.
The high absolute value comes from the size of the French economy. Hidden activities can include undeclared work, small services, or cash transactions. Governments in these developed countries often try to reduce the shadow economy through stricter rules and enforcement.
Which Country Has the Highest Informal Economy?
China is home to the largest shadow economy in the world, with a staggering value of $3.6 trillion. This huge sum represents 20.3% of its total economy. A major reason for this size is the vast number of people working in informal jobs. These include daily labourers, street vendors, and workers in small, unregistered businesses.