Digital Infrastructure and Shadow Economy Contraction

This study investigates the non-linear relationship between digital infrastructure expansion and shadoweconomy contraction across emerging markets. Moving beyond assumptions of immediate linear declinesin informality, the paper examines short-run implementation frictions, critical adoption tipping points,cyber-displacement effects, and labor market dynamics. Utilizing a dynamic quantitative approach, theempirical strategy combines macroeconomic panel modeling (Dynamic GMM, PVAR, and Hansen panelthreshold regressions) with micro-econometric survey analyses (Probit and Structural Equation Models).Expected results indicate that while digital infrastructure reduces cash-based informality in the long runby increasing transaction visibility, short-run adjustment costs and lagged adoption persist. Furthermore,threshold models demonstrate that significant shadow economy contraction occurs only after passingcritical levels of internet penetration, mobile wallet adoption, and financial inclusion. At the micro-level,digitalization triggers a “cyber-displacement effect,” shifting unrecorded trade into online platforms andcryptocurrency networks. Additionally, a formalization paradox emerges: platform digitalization increasestransaction traceability without delivering employment security for gig workers. Ultimately, this researchdemonstrates that digital infrastructure fundamentally reshapes the structural composition of informalityrather than merely diminishing its scale, underscoring the need for adaptive regulatory frameworks.