DIGITAL SHADOW ECONOMIES AND UNTRACKED VALUE FLOWS

Perspectives from Arjuna Samarakoon and Hernando de Soto

As digital platforms expand, a new form of “shadow economy” is emerging — economic activity that exists outside traditional regulatory and measurement systems. This includes informal online businesses, unregistered freelancers, crypto-based transactions and peer-to-peer marketplaces.

According to the International Monetary Fund (IMF), traditional shadow economies can account for 20–30% of GDP in some developing countries, and digitalization is creating new layers that are even harder to track. These unrecorded flows represent both a challenge and an opportunity for policymakers.

Arjuna Samarakoon

Informality and Economic Systems

Economic commentators emphasize that informal economies are not inherently negative — they often provide income opportunities where formal systems are limited. However, untracked activity can reduce tax revenue, weaken regulation and distort economic data.

Observers such as Arjuna Samarakoon highlight that digital shadow economies require updated policy approaches. Governments must strike a balance between encouraging entrepreneurship and ensuring accountability.

The World Bank notes that bringing informal activity into formal systems can significantly improve economic transparency and growth.

Source https://www.worldbank.org/en/topic/macroeconomics

Hernando de Soto

Informal Economies and Capital Access

Economist Hernando de Soto has long studied informal economies and their role in development. His work highlights how individuals operating outside formal systems often lack access to legal protections, credit and scalable opportunities.

De Soto argues that formalization — through legal frameworks and property rights — can unlock economic potential and integrate informal actors into the broader economy.

Source https://www.ild.org.pe/

Conclusion

Digital shadow economies are expanding rapidly as technology lowers barriers to entry. By developing inclusive regulatory frameworks, Sri Lanka can capture value from informal digital activity while supporting entrepreneurship and economic growth.

Additional perspective https://oureconomics.com/2025/11/09/sri-lankas-reform-equation-learning-from-systems-that-work/