Lebanon’s Economic Development Risk: Global Factors and Local Realities of the Shadow Economy Amid Financial Crisis

Samar F. Abou Ltaif (), Simona Mihai-Yiannaki and Alkis Thrassou
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Samar F. Abou Ltaif: Department of Accounting, Economics and Finance, School of Business Administration, European University Cyprus, Nicosia 2404, Cyprus
Simona Mihai-Yiannaki: Department of Accounting, Economics and Finance, School of Business Administration, European University Cyprus, Nicosia 2404, Cyprus
Alkis Thrassou: Department of Management, School of Business, University of Nicosia, 46 Makedonitissas Avenue, Nicosia 2417, Cyprus

Risks, 2024, vol. 12, issue 8, 1-21

Abstract: The shadow economy’s size and impact remain subjects of extensive research and debate, holding significant implications for economic policy and social welfare. In Lebanon, the ongoing crisis since 2019 has exacerbated severe economic challenges, with the national currency’s collapse, bank crisis, and foreign reserve deficits. The World Bank reports Lebanon’s financial deficit surpassed $72 billion, three times the GDP in 2021. Despite a drastic decline in GDP, imports have surged to near-pre-crisis levels, exacerbating economic woes and indicating a constant outflow of foreign currencies. Considering such contracting facts, this paper aims to investigate global factors influencing the shadow economy and discern their manifestations in Lebanon during financial crises. Our methodology involves a comprehensive literature review, alongside a case study approach specific to Lebanon. This dual-method strategy ensures a detailed understanding of the shadow economy’s impact and the development of actionable insights for policy and economic reform. Through this approach, we seek to contribute to a nuanced understanding of Lebanon’s economic landscape and provide valuable guidance for policy decisions aimed at reducing corruption, promoting transparency, and fostering a robust formal economy. The increase in the shadow economy raises the formal economy risk, as resources and activities diverted to informal channels hinder the growth and stability of the official economic sector. Although focusing on Lebanon, this analysis deepens the comprehension of the economic landscape and provides valuable guidance for policymakers, researchers, and stakeholders, aiming to address the root causes of informal economic activities and promote sustainable growth in developing countries in general.

Keywords: institutional economics framework; formal economy risk; Lebanon; sustainable development; shadow economy (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2024
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