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During the past few decades, competition between countries has intensified. Every country seeks to become an essential player in international economic relations and take a prominent place in the world market. In this context, foreign direct investment inflows are accepted as a source of competitiveness through knowledge, know-how and technology transfer, but competitiveness is also accepted as a significant determinant of foreign direct investment attraction. Therefore, the specification of foreign direct investment inflow determinants is also important to improve competitiveness. In this research article, we aim to evaluate the impact of shadow economies and human development on foreign direct investment inflows as a possible determinant of competitiveness in 11 post-transition EU members over 1995-2015 period. The methodology employed in the applied section includes comparative and systematic literature analysis as well as second generation panel cointegration and causality analyses regarding both cross-sectional dependence and heterogeneity. The empirical analyses revealed that both the shadow economy and human development are significant determinants of foreign direct investment inflows. The causality analysis revealed a mutual interaction between foreign direct investment inflows and human development for all the countries in the sample, but a two-way causality between the foreign direct investment inflows and shadow economies only for Bulgaria, Croatia, and Romania and a one-way causality from shadow economies to the foreign direct investment inflows in the Czech Republic,

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Abstract. Considering the lack of the scientific studies on the selected topic, the authors of this article raise the aim to set up the definition of digital shadow economy and identify its distinctive features and channels. Thus far, the studies on illegal digital activities have covered ambiguous interpretations of digital shadow economy that incorporated both criminal and economic aspects of the activities performed. The results of the empirical research have enabled to formulate the definition of digital shadow economy that refers to illegal activities, such as digital service provision and sales of goods/services online, when operating exceptionally in digital space, the entities violate the existent legal norms and regulations with a pursuit of illegal mutual interest and material benefits. The newly formulated definition of digital shadow economy has served as a corner-stone for identification of the distinctive features and channels of this phenomenon. Hence, the results of the research may make a significant and weighty contribution to the development of the theory of economics and may raise the awareness of what the phenomenon of digital shadow economy implies.

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