CROSS-SECTORAL ANALYSIS OF THE SUSCEPTIBILITY OF COMPANIES TO ILLEGAL ECONOMIC ACTIVITY
Abstract
The shadow economy, combined with the widespread problem of corruption, causes significant challenges for economic development, governance and social justice. Clustering economic activities according to their potential for shadowing and corruption is an emerging field of research that seeks to understand the patterns and determinants of this underground behaviour, offering new perspectives on how to combat it. The purpose of the article is to cluster the sectors of economic activity by the level of their susceptibility to shadow economy and corruption in the context of the European Union. Research methodology. The goal of the article was achieved by using the following research methods: logical generalisation, analysis and synthesis, k-means method, and hierarchical clustering by constructing a tree structure of clusters. The results. The article develops a scientific and methodological approach to grouping economic activities by their potential for the shadow economy and corruption based on 9 pre-selected indicators. The object of the study is 27 countries of the European Union. Based on the results of empirical calculations, the article justifies the reasonability of identifying 2 clusters of economic activities depending on their potential for illegal activities. The first cluster includes industries with a lower risk of corruption and shadow economic activity: healthcare and pharmaceuticals; engineering and electronics, motor transport; financial services, banking and investment. The second cluster includes industries with a higher risk of corruption and shadow economic activity: energy, mining, oil and gas, chemicals; construction and building; telecommunications and information technology. Practical significance of research results. The development of a methodological approach to clustering economic activities according to their susceptibility to illegal economic activity in the EU countries is critical for improving risk management, adapting regulatory policies, increasing trust and promoting cooperation in combating illegal economic activity.
References
Abuzayed, B., Ben Ammar, M., Molyneux, P., & Al-Fayoumi, N. (2024). Corruption, lending and bank performance. International Review of Economics and Finance, 89, 802–830. DOI: https://doi.org/10.1016/j.iref.2023.07.080
Arhin, G. E. (2024). Investigating the differential politics of competitive bidding in Ghana’s hydrocarbon and mining industries. Resources Policy, 90. DOI: https://doi.org/10.1016/j.resourpol.2024.104814
Demšar, J., & Zupan, B. (2013). Orange: Data mining fruitful and fun – A historical perspective. Informatica (Slovenia), 37(1), 55–60.
Demšar, J., Curk, T., Erjavec, A., Gorup, Č., Hočevar, T., Milutinovič, M., … Zupan, B. (2013). Orange: Data mining toolbox in python. Journal of Machine Learning Research, 14, 2349–2353.
European Commission (2023). Businesses’ attitudes towards corruption in the EU. Report Flash Eurobarometer. URL: https://europa.eu/eurobarometer/surveys/detail/2969
OECD (2020). Public Integrity for an Effective COVID-19 Response and Recovery. URL: https://read.oecd-ilibrary.org/view/?ref=129_129931-ygq2xb8qax&title=Public-Integrity-for-an-Effective-COVID-19-Response-and-Recovery
Officials, OECD Publishing. DOI: https://doi.org/10.1787/9789264226616-en
Sachs, J., and A. Warner. (1995). Economic reform and the process of global integration. Brookings Paperson Economic Activity, 1995(1):1-118.
Sharma, C., & Mishra, R. K. (2022). On the Good and Bad of Natural Resource, Corruption, and Economic Growth Nexus. Environmental and Resource Economics, 82(4), 889–922. DOI: https://doi.org/10.1007/s10640-022-00694-x
U4 Anti-Corruption Resource Centre. U4 Expert Answer. Programmatic approaches to address corruption in the construction sector. URL: https://www.u4.no/publications/programmatic-approaches-to-address-corruption-in-the-construction-sector.pdf
World Economic Forum (2016). This is why construction is so corrupt. URL: https://www.weforum.org/agenda/2016/02/why-is-the-construction-industry-so-corrupt-and-what-can-we-do-about-it/
