Proxying the Invisible: Estimating Transnistria’s Shadow Economy and Its Threats to Regional Economic Security

Abstract

This paper explores the shadow economy in Transnistria and its implications for Moldova’s economic security. As an unrecognized and semi-autonomous region, Transnistria operates largely outside Moldova’s formal regulatory and fiscal systems, fostering informal and semi-legal economic practices. Conventional estimation methods, such as the Currency Demand Approach (CDA), cannot be applied due to the lack of reliable monetary and macroeconomic data. To address this limitation, a population-intensity proxy model is used, drawing on Moldova’s national shadow economy estimates (42.8 % of GDP in 2020; 37.1 % in 2025) and adjusting for Transnistria’s population share and higher informal intensity. Results suggest that informal activity may range from 1.7 % to 3.4 % of Moldova’s GDP in 2020 and 1.5 % to 3.0 % in 2025. The analysis indicates that informal practices are concentrated in fuel, metals, alcohol, and tobacco trade, and are partly facilitated by Russian patronage reflecting the structural embedding of informality in governance arrangements, highlighting the intersection of contested sovereignty, institutional fragility, and external influence. By integrating proxy estimation with qualitative insights, this research illuminates how shadow economies in unrecognized territories reshape governance, distort trade, and pose systemic economic security risks.