Economic transformation outside the law: corruption, trust in public institutions and the informal economy in transition countries of Central and Eastern Europe

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This article considers the role of the informal economy in Central and Eastern European post-communist countries. The informal economy is defined as the 'black' economy, which is nionetised but outside the law (often illegal) oil the one hand and the 'household' and 'social' economies which are non-monetised and non-legal in the sense that they are outside of legislation. The article shows that in some countries the black economy is very important for supporting household incomes (Serbia and Croatia) and in other countries the household or social economies are predominant (especially Romania and Ukraine). In a third group Of countries the formal economy predominates over other economies (especially the Czech Republic and Hungary). The article goes oil to look at what kinds of people participate in these different economies and concludes that whilst the household and social economies are a social safety net for the poor, the elderly and those in rural areas, the black economy is more likely to be an option for those who are already better off to improve their incomes. The article considers the implications of this for attitudes to the legitimacy of the public realm and finds that greater participation in the informal economy is associated with both loss of trust in public institutions and increased perception of corruption. Therefore it is hypothesised that economic activities that take place 'outside the law' could lead to a decline in confidence in the state, although there are important variations between countries.

Original languageEnglish
Pages (from-to)81-102
Number of pages22
JournalEurope-Asia Studies
Issue number1
Publication statusPublished - Jan 2006

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