The paper "Sex, Drugs, and GDP: the Challenge of Measuring the Shadow Economy" is a good example of an essay on macro and microeconomics. Dear editor, I wish to give some viewpoint from the analysts’ community regarding a recent article that appeared in your journal. The article had described the intention of some EU countries such as the UK, Italy, and Ireland to include prostitution and other illicit doings in their GDPs. The article stated that the inclusion of prostitution and illegal drugs will substantially increase the economies of these countries and also ensure uniform comparison of GDPs throughout the region.
However, I would wish to differ with the idea of including illicit doings in computing a country’ s GDP. In as much as most economists may accept the inclusion of illicit activities in computing the GDPs of the countries, my opinion is entirely different. I do agree that the inclusion contributes to a better estimation of the real size of the economy, but how can an economist accurately measure ‘ how much’ of prostitution or smuggling takes place within the economy?
It might appear easy to collect data on the approximate number of sex workers or drug dealers operating throughout the country and use it in estimating their contribution by multiplying by their average earnings. The challenge arises while making reliable estimates of the incomes of those engaging in these illicit activities. Majority of them do not take part in economic surveys because of the fear of repercussions. They like going about their daily activities in complete secrecy. It is, therefore, impossible to get reliable data on the exact or estimated income of a drug smuggler.
Some economists may argue that the inclusion of such illicit activities is a better counting of everything that people are doing in the economy irrespective of its legality. I agree that everything that happens within the economy should be counted, but even the usual ways of GDP computation still ignore other activities in the informal sector of the economy. Prostitution and other illicit activities should, therefore, be left out while calculating GDP. If such activities are included, their contribution will be total guesswork. They will not provide a reliable estimate of the size of the economy.