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The Shadow Economy and Its Impact on National Competitiveness: The Case of Slovenia The paper presents a socioeconomic analysis of the phenomena of informal economic activity. It is argued that the shadow economy has been beneficial for Slovenian society since the 19th century and has significantly contributed to the success of the Slovenian economy under the socialist regime. During Slovenia's transitional phase it has stimulated the formal economy, soothed social tensions and allowed export-oriented enterprises to remain internationally competitive by paying lower wages and obtaining cheaper inputs. However, it hinders innovation, impedes entrepreneurship and maintains the status quo, and thus represents an obstacle for future economic development in Slovenia.