A huge part of the global economy is hidden from the official numbers. Globally, the size of the shadow economy is estimated to be around $12 trillion. It reflects that a massive part of the world’s total output operates under the radar.
In 2023, China, the world’s second-largest economy had the largest shadow economy in absolute terms at approximately $3.7 trillion, which makes up over 20% of its GDP. The United States comes in second place with an informal economy worth $1.4 trillion, about 5% of its GDP. These two largest economies collectively have shadow economy of about $5 trillion.
Key Takeaways
- The global informal economy is worth around $12 trillion, which covers a significant part of economic activity worldwide.
- China, the U.S., and India are the top three countries with the largest informal economies in the world.
- Countries with lower regulatory enforcement or high unemployment usually have a larger share of informal activity within the informal economy.
What Is the Shadow Economy?
The shadow economy or informal economy refers to the business and employment activities that are not tracked by official data or taxed by the government. It covers a wide range of work such as a street food vendor, a home-based tailor, and unregistered small shops etc. These activities aren’t necessarily illegal, but they remain unreported to the official authority, resulting in a loss of tax revenue and protection of labour. In many developing countries, the informal economy constitutes a major portion of the total economy.
The informal economy emerges when people can’t find formal jobs or when small businesses can’t afford to register and pay taxes. Additionally, heavy regulations, lack of trust in government, or gaps in law enforcement are also the main causes of the shadow economy.
The Shadow Economy by Country
The following table shows the top 10 countries with the largest shadow economies in 2023. The informal economy percentage of each country is taken from the Global Shadow Economy Report 2025. The GDP values come from the International Monetary Fund, and the shadow economy figures in U.S. dollars are estimated based on these percentages.
| Rank | Country | GDP (2023) | Shadow Economy Value | % of GDP |
|---|---|---|---|---|
| 1 | 🇨🇳 China | $18.27 Trillion | $3.71 Trillion | 20.30% |
| 2 | 🇺🇸 USA | $27.72 Trillion | $1.39 Trillion | 5.00% |
| 3 | 🇮🇳 India | $3.64 Trillion | $951 Billion | 26.10% |
| 4 | 🇧🇷 Brazil | $2.19 Trillion | $451 Billion | 20.60% |
| 5 | 🇮🇩 Indonesia | $1.37 Trillion | $326 Billion | 23.80% |
| 6 | 🇲🇽 Mexico | $1.79 Trillion | $320 Billion | 17.90% |
| 7 | 🇩🇪 Germany | $4.53 Trillion | $308 Billion | 6.80% |
| 8 | 🇯🇵 Japan | $4.21 Trillion | $282 Billion | 6.70% |
| 9 | 🇷🇺 Russia | $2.06 Trillion | $270 Billion | 13.10% |
| 10 | 🇫🇷 France | $3.06 Trillion | $205 Billion | 6.70% |
The data is sourced from the Global Shadow Economy Report 2025, IMF
China
China is the world’s second-largest economy, with a GDP of $19 trillion. The country’s shadow economy is valued at $3.7 trillion, making it 20% of its total economy. China’s economic rise has formalized a large portion of its labor force, however, the shadow economy remains deeply rooted due to high migration, unregistered businesses, and tax avoidance.
According to the World Bank, China’s tax-to-GDP ratio stands at approximately 7%. This is due to the large informal sector operating in the country in various sectors in both rural and urban areas.
United States
The U.S. has the world’s largest economy by nominal GDP. The country has an informal economy worth about $1.4 trillion, or about 5% of its GDP. This is relatively low compared to China, due to the stronger regulations and tax systems in the United States. Still, the shadow economy exists in sectors like domestic work, gig labor, and undocumented immigration-based employment.
The United States’ tax-to-GDP ratio stands at around 10%, partly due to the presence of its undocumented shadow economy.
India
India is the fifth-largest economy in the world. The country has the third-largest shadow economy globally, which stands at $951 billion, making it about 26% of its GDP. However, in percentage terms, India has the largest informal economy among the top 10 countries on the list.
The informal economy in India covers everything from street vendors and small shops to agricultural labor and construction. Many businesses operate without formal registration due to red tape, lack of awareness, or cost constraints. Due to a high informal economy, India has a lower tax-to-GDP ratio of approximately 6%.
Other Major Countries and Regional Trends
Brazil, Indonesia, and Mexico also have large informal sectors. Brazil’s shadow economy is about $448 billion, or 20.6% of GDP. It is driven by large-scale unemployment and a complex tax system that pushes many small businesses to operate informally.
Similarly, Indonesia and Mexico have informal sectors making up 23.8% and 17.9% of their GDPs, respectively. Agriculture, retail, and small-scale manufacturing dominate these shadow economies.
In Germany, France, and Japan, the portion of informal economy is much smaller in percentage terms, around 6% to 7% of GDP. These countries have stronger law enforcement, better social safety nets, and efficient public services, which reduce the incentive to operate outside the formal economy.
Interestingly, Russia also stands in the 9th position, with a $270 billion shadow economy, which makes up 13.1% of its GDP. This is partly due to low trust in government, heavy regulations, and informal labor arrangements within the shadow economy.
Conclusion
The shadow economy is a major part of global economic activity, valued at around $12 trillion in 2023. The countries with the largest informal economies in dollar terms are China ($3.7T), the United States ($1.4T), and India ($951B). However, in percentage terms, developing countries often have far higher shares of informality due to unemployment, red tape, or tax burdens.
While the informal economy provides livelihoods to millions of people worldwide, it also comes with downsides like low worker protection and tax losses.
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