Study of the Informal Economy Impact on Import in BiH

Abstract

This paper investigated the informal economy as one of the components of aggregate supply in function of increasing demand for imports in B i H. The informal economy is a common problem faced by small transitional countries in Eastern Europe region. One of the main couses of this phenomenon is lack of trust in conventional institutions and in their ability to provide full employment. Theorybased propositions were investigated using a simple econometric model and re- vealeng a strong correlation of explanatory variables with import function as the depend variable. Concepts where based on a simple paradigm : Income is the key factor accounting for variability in the import function. Importst represent a function of the domestic aggregate, while exporst has been seen exogeneously as independent of the income level. In addition to income derivated from the regular economy, wealth created by actors in the informal sector is an important determinant of consumption expenditure. We conclude that, in short-term, the informal economy may have negative effects on legal economic activities and thus jeopardize public finance and official economy system, but in the long-term, the best solution is to accept and integrate this sector into legal structures of the formal economy. This paper also provides a fondation for further discussion of guidelines for conducting research into the informal economy.