The Shadow Economy and Smuggling and Their Impact on the Libyan Economy – A Case Study of Smuggling Between Libya and Tunisia

Abstract

Smuggling and the shadow economy represent major challenges to the Libyan economy, particularly since 2011, when these phenomena intensified due to weakened state institutions and security breakdowns. Such illicit economic activities negatively affect Libya’s economy by undermining the formal sector and expanding illegal practices. The impact extends beyond the domestic sphere, influencing economic relations between Libya and its neighboring countries. Existing studies indicate that the shadow economy and smuggling widen the gap between formal and informal sectors, thereby weakening key industries such as agriculture and manufacturing. Moreover, these activities distort markets and contribute to price inflation, increasing the burden on consumers. This study aims to analyze these effects and propose effective solutions to combat the shadow economy and smuggling, with the ultimate goal of promoting economic and social stability in Libya.