SHADOW ECONOMY OF UKRAINE UNDER MARTIAL LAW: INSTITUTIONAL DETERMINANTS, RISKS, AND MECHANISMS OF COUNTERACTION

Abstract

The article examines the complex phenomenon of Ukraine’s shadow economy under martial law, a period in which the scale of informal activity increases sharply due to infrastructure destruction, declining institutional capacity, and deep societal uncertainty. The aim of the study is to analyse the structural features of shadowing during wartime, identify the key factors contributing to its expansion, and assess the impact of the shadow sector on Ukraine’s economic and national security. Particular attention is paid to the transformation of economic behaviour among actors who are forced to adapt to extreme conditions, thereby altering the nature of their interaction with state institutions. The methodological framework combines quantitative and qualitative approaches, including the analysis of statistical data, econometric modelling, content analysis of legal acts, comparative studies of countries that have experienced armed conflict, and an interdisciplinary approach integrating political economy, institutionalism, and theories of economic security. This methodological design enables a comprehensive understanding of the multidimensional nature of shadowing under wartime conditions. The article identifies the main drivers of shadow economy growth, including the sharp decline in state control, disruption of logistical chains, commodity shortages, increased reliance on cash transactions, migration processes, and institutional destabilisation. It is shown that informal employment, tax evasion, smuggling, corruption markets, and shadow logistics significantly expand their presence as a result of transformed economic incentives and heightened risks in the formal sector. The findings demonstrate that the shadow economy has become one of the central factors undermining the state’s economic resilience, as it erodes budgetary stability, impedes effective financial planning, exacerbates social inequality, and destabilises the labour market. Shadowing also reduces investment attractiveness, distorts competition for small and medium-sized enterprises, and creates a favourable environment for criminal networks that pose direct threats to national security. The paper argues that effective counteraction to shadowing is possible only through strengthening the institutional capacity of the state, digitalising control mechanisms, modernising the tax system, implementing risk-based approaches to monitoring financial operations, and enhancing cooperation between the state, business, and civil society. International partners play an important role by supporting the modernisation of supervisory institutions and the introduction of technological solutions. The conclusion emphasises that, in wartime, the shadow economy functions not only as an economic challenge but also as a systemic indicator of state resilience, its ability to uphold the rule of law, and its capacity to implement effective policy. Successful de-shadowing is possible only through an integrated combination of institutional, legal, technological, and social strategies aimed at strengthening trust, transparency, and the adaptability of economic governance during wartime and post-war recovery.