Urban Economics and Planning

Urban Economics and Planning

Key Drivers of the Underground Economy and Its Sustainability Assessment through a Foresight Approach: A Case Study of Ardabil City

Document Type : Original Article

Authors
Ebrahim Abdi 1
Behnam Bagheri 2
1 Assistant Professor, Department of Economics, Faculty of Management, Economics and Accounting, University of Payame Noor, Tehran, Iran
2 Assistant Professor, Department of Geography, Faculty of Social Sciences, University of Payame Noor, Tehran, Iran
10.22034/uep.2025.519216.1631
Abstract
Introduction 
The informal economy is a complex and heterogeneous phenomenon, where its determinants and consequences depend on the characteristics of involved entities and macroeconomic and institutional factors. Due to its multidimensional nature, no comprehensive theory can fully explain the informal economy in both developing and developed contexts. A theoretical framework suitable for understanding the informal economy in a developing country may not adequately reflect its nature in a developed one. With the rapid evolution of the global economy, the informal sector continuously creates new growth opportunities, making it essential for governments to build effective and sustainable strategies for its regulation and mitigation. Businesses operating in the informal economy often gain unfair advantages over formal enterprises by avoiding licensing requirements, labor regulations, safety standards, and taxation, undermining formal businesses and forcing many out of the market. The expansion of illegal activities contributes to rising crime rates and exacerbates socioeconomic inequalities, particularly when informal employment dominates the labor market, depriving workers of legal protections and social benefits. In Iran, as in many other countries, the informal economy poses substantial challenges, with estimates indicating its share is between 29% and 36% of the national GDP. Ardabil is particularly susceptible to the proliferation of informal economic activities due to factors such as below-average urban household income, an unfavorable business environment, and rapid urban expansion and population growth in recent decades.
Materials and Methods
This applied research employs a descriptive-analytical methodology grounded in foresight studies. Data were collected through questionnaires using the Delphi technique. Experts in economics and urban planning completed the questionnaires. The study’s statistical population included university faculty and economic and urban affairs professionals. Delphi panel members were selected through snowball sampling, with 30 qualified participants. In the first Delphi round, a structured questionnaire via content analysis was used to gather key components influencing the informal economy. In the second round, the identified components were prioritized. A smaller expert group then evaluated the most critical variables. A cross-impact matrix was developed to assess the interrelationships among variables, with experts rating the influence on a scale from 0 to 3. Finally, MICMAC software was employed to analyze the data and identify key driving forces.
Findings
Based on expert input and the Delphi method, 35 variables affecting Ardabil’s informal economy were identified. These variables were compiled into a 35×35 cross-impact matrix and evaluated using MICMAC. Results revealed that these variables interact to sustain Ardabil’s informal economy as a stable system, meaning it maintains its structure, coherence, and functionality over time. The most significant drivers were economic instability, inflation, weak law enforcement, sanctions, administrative bureaucracy, low wages, exchange rate volatility, an inefficient judiciary system, poor performance of local supervisory institutions, and population density. In addition, three highly dependent and influential variables—low GDP growth, unemployment, and high profitability of informal activities—act as “confidence variables” in the system. These variables quickly absorb and transmit changes, contributing to systemic fluctuations. Other dependent variables included urban migration, lack of adherence to the rule of law, poverty, institutional corruption, the proliferation of informal settlements, income inequality across urban areas, high crime rates, and unregulated activity in the waste management sector.
Conclusion
Among the 35 variables studied, 12 were identified as key drivers significantly influencing the growth of the informal economy in Ardabil. Economic instability—particularly in non-industrial cities like Ardabil—has contributed to socio-economic imbalances, incentivizing informal activity. Weak enforcement of regulations, ineffective oversight institutions, and bureaucratic inefficiencies have led many economic actors to prefer the informal sector over formal engagement. Additionally, urban expansion, population density, and low wages have facilitated the growth of informal employment, especially in the waste management sector. The three variables of low GDP growth, unemployment, and high returns from informal work were found to have the highest dependency and influence within the system. The study concludes that Ardabil’s informal economy is a resilient system that maintains its structure and performance over time. Consequently, isolated or temporary policy interventions targeting individual drivers are unlikely to significantly curb informal economic activities.
Keywords
Ardabil City
Foresight
Sustainability
Underground Economy

Subjects

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Urban Economics and Planning
Volume 6, Issue 2
Spring 2025
Pages 172-185

  • Receive Date 26 April 2025
  • Revise Date 25 May 2025
  • Accept Date 25 May 2025