The shadow or underground economy is a phenomenon that affects not only emerging markets and developing countries but also advanced economies. The shadow economy can take various forms. One definition of the phenomenon is that the underground economy represents all informal economic activities, commercial or noncommercial, conducted in an organized form, which are not officially recorded, may be legal or illegal and dangerous or hazardous to the economic and civil society. Another definition is that the underground economy is simply a spontaneous reaction to the inability of the public authorities to secure the conditions required for an efficient business environment and living conditions. Using a combination of the basic definitions that exist in the literature, competitiveness refers to the whole economic life of a country in an internationalized environment and describes the country's ability to achieve continuous improvements in the living standards and employment opportunities of its citizens. It affects all sectors of the economy, products, and services produced by the private or the public sector, marketable goods and services, non-market goods and services, financial services, and businesses operating in the real economy (households and state). The purpose of this paper is to try to analyze the link between shadow economy and competitiveness. More specifically, with the use of linear regression (OLS), we seek evidence for the existence or not of a relationship between the external competitiveness of the economy of a country - as measured by the IMF and World Bank competitiveness indices - and the shadow economy present in that country. We do that for the countries of the European Union (EU). Our findings can be of use to policymakers, for containing the shadow economy in favor of competitiveness and for understanding the dependence of competitiveness from shadow economy.

JEL classification: G10, G11, G20, G40

Key words: competitiveness; crisis, Shadow Economy, Financial Sector Development