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A shadow economy refers to the unregulated forms of business that produce funds/money by providing a service/product.These businesses can be legal or illegal, but they operate mainly on a cash basis.One way a shadow company can affect a countries GDP is by selling cheap goods.Some shadow companies act as competition for other companies that are legitimate/regulated.By producing the same or similar goods, the shadow company has a negative effect on whomever it is in competition with.The regulated company may have to possibly lay workers off, lower prices on their goods/services, and in the worst-case scenario, they could go out of business.The unregulated company is no longer contributing to the GDP and the laid off workers are not purchasing goods.

One of the main factors influencing the shadow economy are rising taxes.The cost of everything goes up and the consumer has less money to spend out in the economy.When companies pay higher taxes, they compensate by paying employees less and pulling back on benefits.The shadow company is a challenge for governments because politicians are sometimes involved with the shadow economy operations.Corruption at any political level has far reaching effects on how well a shadow company can operate.National culture also influences shadow economies.Businesses have different values that they adhere to.Some practices may seem less important or hold no real significance as far as making money or maintaining a good work culture.

This is a topic has made me aware of things I didn't give much thought to in the past.When most people think about the economy and all the variables that influence it, the government and big business are usually where our thoughts go.For an individual who wants to do something about shadow economies, they first need to understand its characteristics and its effect on their life and environment.Being suspicious of businesses that operate on a cash only basis is a good start.