SIZE AND IMPLICATION OF UNDERGROUND ECONOMY IN ROMANIA - A
                      MIMIC APPROACH

                      Corina - Maria Ene, Hyperion University from Bucharest
                   Andrei Ştefănescu, „1 Decembrie 1918” University of Alba Iulia


ABSTRACT: Since the economic crisis affected the real economy in Romania, the official GDP
declined by almost 5 percent in 2009 compared with 2008, 1.3 percent in 2010 against the previous
year and unemployment increased too. In 2011 a moderate growth of the GDP is expected but
unemployment will further increase. Against this background the extent of the underground economy in
Romania and its development over time are once again the subject of intense debate, as many people
will attempt to make up for loss of income in the official economy through greater participation in the
underground economy.
The objective of this paper is to estimate the size of the underground economy in Romania by using the
Multiple Indicators Multiple Causes (MIMIC) method. The MIMIC approach is based on the idea that
the underground economy is not a directly observable measure, but it is possible to approximate it
using quantitatively measurable causes of working in the underground economy and using indicators
in which underground economic activities are reflected. In addition, the paper aims at clarifying to
what extent the variables explain the size of the underground economy in Romania.

Key words: underground economy, Multiple Indicators Multiple Causes (MIMIC), latent variable, structural
equation model

JEL Codes: O17, H26