EMPIRICAL ASSESSMENT OF THE INVERSE RELATIONSHIP BETWEEN ACTIVE BUSINESS DENSITY AND SHADOW ECONOMY SCALE ACROSS REGIONS OF UZBEKISTAN

Annotatsiya

Shadow economic activity in Uzbekistan differs sharply across territories, yet the association between formal business density and informality has received little regional econometric scrutiny. This study examines whether a larger stock of active enterprises accompanies a smaller shadow economy share in the 14 administrative territories of Uzbekistan. Official statistics on active enterprises, gross regional product (GRP) and the informal and hidden economy were merged into a balanced 2017–2025 panel of 126 observations, with 2024 serving as the reference cross-section. An ordinary least squares log-log model, ln(Shadow_Share) = β0 + β1 ln(Enterprises) + β2 ln(GRP) + ε, was estimated and tested for multicollinearity, heteroscedasticity, residual normality, functional form and influential observations, then re-estimated with year effects, two-way fixed effects and long differences. The 2024 model explained 68.8% of the variance (adjusted R² = 0.632; F = 12.14, p = 0.002). The GRP elasticity was −0.908 (p < 0.001): a 1% larger regional output corresponded to a 0.90% lower shadow share, negative in every specification and significant in all panel and longdifference estimates. The enterprise elasticity was positive (0.850, p = 0.005) once GRP was controlled, statistically equal in magnitude to the GRP elasticity, and vanished without Navoi and under fixed effects; the bivariate elasticity was −0.145 (p = 0.484). Formalization therefore tracks output per registered enterprise rather than enterprise numbers. Policy should therefore favor enterprise scaling, digital tax compliance and lower transaction costs, while recognizing that the very small sample, preliminary 2024 GRP data and partly accounting-based link limit causal interpretation.