The impact of informality and institutional quality on environmental footprint: The case of emerging economies in a comparative approach.

The endeavor to implement the 2030 Agenda of national and international stakeholders became increasingly impetuous, considering the wide range of uncertainties and risks. The new humans-centered development model built on the prominence of environmental and social values seeks to reinforce communities' resilience and mitigate environmental risks, leaving no one behind. For this to happen, solid and effective institutions, the right environmental policies, and a safe statutory labor framework are the sine qua non. In this study, we evaluated the effects of informality, institutional quality, and renewable energy consumption on ecological footprint of two groups of emerging countries from Europe and Asia from 2002 to 2018. Our results by PMG-ARDL approach highlight dissimilarities between the two groups, showing greater heterogeneity. In this sense, informality is found to have positive and significant effects on ecological footprint in the long run in emerging European countries. In contrast, the effect is negative for emerging Asian countries. In the short run, the effects are less critical in the studied countries between the two groups. Institutional quality variables impacted environmental quality differently. In this sense, it is detrimental for policymakers to consider concerted measures to decrease institutional vulnerabilities and reduce the level of the informal economy. The outcome of this study concurs with a complete awareness of the importance of informality and institutional quality to mitigate social and environmental risks conjunctively.

Environmental impact of the shadow economy, globalisation, and human capital: Capturing spillovers effects using spatial panel data approach.

Most of the environmental degradation literature evaluates the determinants of polluting gas emissions as a spatially static process. However, environmental pollution is a problem that is not limited to the borders of the countries. One way to capture temporal and spatial changes in pollutant emissions is by using the benefits of spatial panel data models. This research aims to empirically examine the environmental impact of the shadow economy, the globalisation index, and the human capital index in 101 countries during 1995-2018. We employ a set of spatial autoregressive models (SAR), Durbin spatial models (SDM), and spatial lag models (SLX) of panel data to estimate direct, indirect, and total impacts. The results are stable before changes in the econometric specification and different ways of calculating spatial weights matrix. The results show that polluting gas emissions have a high spatial dependence on all specifications. The interdependence between the countries explains the spillover effect of environmental pollution on the rest of the countries that are geographically close. The policy implications derived from our research point to achieving sustainable economic and environmental development, where coordinated actions among countries and greater regulation of the behaviors of economic agents related to the shadow economy are recommended.

Does the economic freedom hinder the underground economy? Evidence from a cross-country analysis.

We evaluate the impact that the economic freedom exerts on the shadow economy for a sample of 152 countries from 1995 to 2017. In order to solve endogeneity issues, we rely on an instrumental variable approach and find that a change in the economic freedom index, induced by the level of independence of financial markets from government actions, adversely affects the hidden economy. To corroborate the interpretation of our results we also show how each subcomponent of the economic freedom index explains the downward change registered in the shadow economy. Further, the negative effect is mainly found in countries characterized by a low level of democracy and strong corruption, whereas in more democratic and less corrupt countries the economic freedom positively affects the size of the shadow economy. Consistent with these findings, we also highlight that the effect of the composite indicator of economic freedom on the hidden economy is U-shaped and this relationship is exclusively driven by both business regulation and the freedom in the legal system and property rights.

Institutional quality, oil price, and environmental degradation in MENA countries moderated by economic complexity and shadow economy.

This paper aims to analyze the link between environmental degradation and institutional quality and the price of oil moderated by economic complexity and the underground economy. We use quantile regressions with annual panel data for 15 countries in the Middle East and North Africa during 1995-2021. The findings indicate that institutional quality, economic complexity, and output positively and heterogeneously impact environmental degradation. However, the square of production has a negative impact, confirming an inverted U relationship between production and environmental degradation. Likewise, we find that the price of oil and the underground economy have a negative and heterogeneous impact on environmental degradation. Based on our results, a potential recommendation for policymakers is that the institutional framework of Middle Eastern and North African countries should be accompanied by a more significant concern for the environment instead of prioritizing extractive growth that is detrimental to the environment's environmental sustainability. Likewise, economic diversification will mitigate environmental degradation and improve formal employment. Our findings are relevant to policymakers and researchers interested in promoting ecological sustainability.

Does tourism reduce the shadow economy? An international evidence.

This paper investigates one of the positive contributions of tourism to the economy through the lens of its influences on the shadow economy. Specifically, our study analyzes the effects of five indicators of tourism consumption (including domestic tourism spending, international travel and tourism consumption, business tourism spending, leisure tourism spending, and outbound tourism spending on the percentage of shadow economy to GDP) in 129 economies between 1996 and 2015. We find interesting results that contribute to the existing literature about tourism economics. Firstly, the development of the inbound tourism industry reduces the shadow economy significantly, while outbound tourism causes higher underground economic activities. Secondly, the influence of tourism on the shadow economy is significant in both the short-run and long run with a stronger effect in the long run. Thirdly, the effect of tourism on the shadow economy is more significant in the 42 High-Income Economies and 54 Low and Lower-middle Income Economies, while it is less obvious in the 33 Upper-Middle Income Economies. These findings have been checked by a battery of robustness checks ensuring their statistical consistency.

Investigating the financial market development and shadow economy nexus in the presence of country risk in an emerging economy.

This research study examined the influence of financial market development on the shadow economy and the moderating effect of country risk (political, economic, and financial) in this nexus in Pakistan. Using data from 1995 to 2018, the study applied the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests, followed by the F-bounds test to investigate stationarity and cointegration in the series, respectively. The study utilized the Autoregressive Distributed Lag (ARDL) approach to estimate the long-run relationship, and to examine the possible causal relationship among the variables, the study employed Breitung and Candelon's (2006) spectral test. The study identified that financial market development is negative, and the country's risk determinants are positively associated with the shadow economy's size. Moreover, the study found that country risk positively moderates the influence of financial market development on the shadow economy. The results also highlighted a unidirectional relationship from economic and financial risk towards the shadow economy. Finally, based on the empirical findings, the study recommends some policy implications to the regulators of financial markets and the shadow economy.

How does ICT affect the shadow economy towards environmental preservation? Evidence from a panel of developing and developed nations.

Despite the increasing size of the shadow economy worldwide, more particularly for developing economies, limited scientific attention has been devoted to exploring its diverse impacts, such as the harmful environmental issues that could arise from informal activities. This study aims to investigate ICT impacts of the shadow sector on the environment using two-step system GMM method for two panels of 57 developing and 34 developed nations, spanning the years from 1998 to 2015. Two measures for the dependent variable are used: CO2 emissions from transport activity and liquid energy demand. The size of the shadow economy and ICT are used as independent variables. The empirical evidence suggests four main results. First, the shadow economy harms the environment in the context of developed nations; however, it can reduce environmental degradation in developing economies. Second, ICT hurts the environment for all countries except telephone usage, which favors ecological quality in developing economies. Third, the association between ICT and the shadow economy positively affects the environment in developed countries, but it becomes very weak in developing ones. Fourth, the telephone is the most efficient technology for reducing air pollution in developed economies when adopted in the shadow sector. Public policy should encourage the adoption of new technologies in the shadow sector and the regularization of informal activities in developed economies to mitigate carbon emissions.

Model-Selection Inference for Causal Impact of Clusters and Collaboration on MSMEs in India.

Do firms benefit more from agglomeration-based spillovers than the technical know-how obtained through inter-firm collaboration? Quantifying the relative value of the industrial policy of cluster development vis-à-vis firm's internal decision of collaboration can be valuable for policy-makers and entrepreneurs. I observe the universe of Indian MSMEs inside an industrial cluster (Treatment Group 1), those in collaboration for technical know-how (Treatment Group 2) and those outside clusters with no collaboration (Control Group). Conventional econometric methods to identify the treatment effects would suffer from selection bias and misspecification of the model. I use two data-driven, model-selection methods, developed by (Belloni, A., Chernozhukov, V., and Hansen, C. (2013). Inference on treatment e ects after selection among high-dimensional controls. Review of Economic Studies, 81(2):608 650.) and (Chernozhukov, V., Hansen, C., and Spindler, M. (2015). Post selection and post regulariza- tion inference in linear models with many controls and instruments. American Economic Review, 105(5):486 490.), to estimate the causal impact of the treatments on GVA of firms. The results suggest that ATE of cluster and collaboration is nearly equal at 30%. I conclude by offering policy implications.

On the link between shadow economy and carbon dioxide emissions: an analysis of homogeneous groups of countries.

In the framework of an environmental Kuznets curve, the linkage between shadow economy and carbon dioxide (CO2) emissions was evaluated for 145 countries from 1991 to 2017. In assessing the effect of the shadow economy on CO2 emissions, we used panel quantile regression, panel fixed effects, and panel smooth transition regression as estimation methods. In addition, to deal with parameter heterogeneity, we resorted to the procedure of Lin and Ng (2012). We found two country groups that share homogeneous parameters. No environmental Kuznets curve was found for the set of all countries. Nevertheless, one was found for each of the homogeneous parameter country groups. This result supports different turning points for different groups of countries. Shadow economy contributed to reducing CO2 emissions in group 1 and aggravated it in group 2. Manufacturing was revealed to be statistically significant for the countries of group 1. Fossil fuel rents increased the CO2 emissions, mainly in group 2. Urbanization contributed to the hike of CO2 emissions in both country groups but much more intensely for group 1. Evidence of a tendency for decreasing CO2 emissions was also found, reflecting the efficiency gains over time.

Fiscal stimulus packages to COVID-19: The role of informality.

In this paper, we use a novel cross-country dataset to investigate the relationship between the prevalence of the shadow economy and fiscal policy responses to the economic crisis induced by the pandemic. The finding is that countries with a relatively larger shadow economy before the pandemic have adopted a smaller fiscal policy package. The results are robust to different econometric specifications, including an instrumental variable estimation. This reinforces the wider literature that countries (especially those with larger shadow economies) generally follow a procyclical policy as opposed to the optimal and countercyclical one.

The shadow economy-environmental quality nexus in OECD countries: empirical evidence from panel quantile regression.

This study examines the heterogenous impact of shadow economy on the ecological footprint. We apply the panel quantile regression to a panel dataset of 32 OECD countries from 1990 to 2015. The estimation results indicate that the shadow economy-ecological footprint nexus follows an inverted U-shaped pattern. Initially, the higher size of the informal economy leads to more ecosystem degradation. When the shadow economy increases to certain thresholds, its environmental impact reverts to benefit. Such threshold changes with the evolution of the ecological footprint. Specifically, it first rises then decreases along with the degradation of the ecosystem. Moreover, the heterogeneous panel causality test reports the one-way directional running from the shadow economy to the ecological footprint in OECD countries. Likewise, environmental effects of other control variables, including trade openness, energy intensity, renewable energy, and income, are also not homogeneous across various levels of the ecological footprint. The significant and heterogeneous relationships between ecological footprint and its determining factors provide insightful implications for governments in tailoring environmental regulations upon different ecological conditions.

Do disease epidemics force economic activity underground? International evidence.

This article studies the impact of disease epidemics on the worldwide prevalence of the shadow or the underground economy. The informal sector has low entry barriers and provides an easy short-term option for the supply of goods and services during epidemics when traditional supply lines are cut or strained. Furthermore, the enforcement resources might be directed elsewhere during epidemics, lowering the expected costs of shadow operations. Using data for over 125 nations, we find that the incidence of epidemics positively and significantly contributes to the spread of the underground sector. These findings withstand a series of robustness checks.

Impact of shadow economy on renewable and nonrenewable energy consumption in Pakistan: evidence from quantile cointegration and causality analysis.

The objective of this study is to identify the impact of the shadow economy on renewable and nonrenewable energy consumption at aggregated and disaggregated levels over the period of 1972Q1-2018Q4 in Pakistan. This study carries nonlinear/asymmetric time series analysis such as quantile unit root test for stationary of data series, newly developed quantile cointegration (Xiao, J. Econom. 150:248-260, 2009) for existence of long-run relationships and novel quantile causality approach (Troster, Econom. Rev. 37, 850-866, 2018) are used to identify direction of causality over the quantiles. The results confirm that quantiles of shadow economy cointegrate with the quantiles of energy consumption at aggregated and disaggregated levels. The results of quantile regression show that a shadow economy has a positive and significant impact on renewable and nonrenewable energy consumption at aggregated and disaggregated levels in all quantiles starting from extreme low quantiles to extreme high quantiles. Furthermore, the results of quantile causality illustrate a unidirectional causality running from underground economy to fluctuations in renewable, nonrenewable, and total energy consumption. More specifically, disaggregated energy consumptions such as oil, gas, nuclear, hydro, and gas are also caused by shadow economy, generally in low and high tails/quantiles.

Re-evaluating the dynamic role of shadow economy and environmental policy stringency in the energy-growth nexus in China.

This paper examines the impact of shadow economy and environmental policy stringency on energy consumption and economic growth in the case of China for the period 1993 to 2019. Asymmetric ARDL empirical findings show that positive shocks in shadow economy and environmental policy stringency have a significant and positive impact on energy consumption and economic growth in the long run. However, the negative shocks in shadow economy exert positive and significant impacts on energy consumption and economic growth in the long run, but magnitudes are small compared to positive shocks. The long-run findings report no significant effect of negative shock in environmental policy stringency on energy consumption and economic growth. China should use environmental policy stringency as economic tools to maintain green economic growth and clean energy demand for sustained economic expansion. Policymakers should focus on the inclusion of environmental policy stringency in any future environment strategy.

The impact of the shadow economy on economic growth and CO2 emissions: evidence from ECOWAS countries.

The Economic Community of West African States (ECOWAS) is one of the most dynamic African sub-regional organizations in several areas, such as economic integration and environmental conservation. On the other hand, it is also one of the sub-regions with the largest size of the shadow economy in the world. This article empirically explores the impact of the shadow economy on economic growth and CO2 emissions in ECOWAS countries. Using system generalized method of moment (SGMM) and common correlated effects mean group (CCEMG) estimators on annual data from 14 ECOWAS countries over the period 1991-2016, the results suggest that the shadow economy decreases economic growth and CO2 emissions. However, the impact of the shadow economy on economic growth is more significant and higher than that on CO2 emissions. The results also indicate that industrialization and urbanization tend to increase economic growth and CO2 emissions in these countries.

Study on the spatial interaction between carbon emission intensity and shadow economy in China.

Both high carbon emission intensity (CEI) and large scale of shadow economy in China are the undesirable products of economic development with too fast growth rate. For the rapid and healthy development of the economy in China, the research on the relationship between the two should attract more attention, while the relevant literatures are very few at present. According to the panel data of 30 provinces in China from 2004 to 2016, this paper firstly examines the spatial correlation between CEI and the scale of shadow economic. Then verifies the interaction relationship between them with SPDM (spatial panel Dubin Model). Moreover, the robustness test is conducted with three different spatial weight matrices. As the interaction between CEI and shadow economy has been proved, providing new ideas for carbon emission reduction, environmental protection, and healthy economic development with rapid rate in the future. The specific conclusions are as follows: first, CEI and shadow economy both have significant positive spatial autocorrelation. Second, there is a spatial interaction between CEI and shadow economy, indicating provincial cooperation plays a very important role in both economic growth and environment protection. Third, the impacts from economic development on both CEI and shadow economy satisfy the EKC hypothesis. Also, the development of the tertiary industry plays a positive role in promoting the growth of CEI, while promotes and inhibits the expansion of shadow economic scale at the same time.

Misuse of charitable giving to finance violent extremism; A futuristic actions study amidst COVID-19 pandemic.

The purpose of the study is to explore the shadow economy of violent extremism through charity lenses and factors associated with misuse of charitable giving in a global financial system. It reviews the emergency response situations like COVID-19 when financial needs are urgent with lacked monitoring and control over payment disbursement to vulnerable groups. It highlights several governments' significant steps to counter the illicit finance flow through 'public-face' charity organizations. Descriptive research was used to gather secondary data insights using published reports, articles, news portals, and policy briefs from renowned institutions. The findings depict four factors known as economic and capacity, socio-cultural, politico-legal, and global networks support in misuse of charitable giving to finance violent extremism. This study claims not all charitable giving misused for extremism and violence. However, there is a possibility that extremist groups could take advantage of using humanitarian organizations' face to finance violent extremism. Two possible recommendations have been made to overcome this issue by adopting digital payment mechanisms and community engagement to design and deliver the COVID-19 response recovery programs.

The shadow economy in South Asia: dynamic effects on clean energy consumption and environmental pollution.

This study explores the symmetric and asymmetric effects of the shadow economy on clean energy and air pollution of South Asian countries over the period 1991-2019. The short-run ARDL findings for the clean energy model suggest that shadow economy increases clean energy consumption in Pakistan and Sri Lanka, whereas this effect is negative for India and insignificant for other countries. The long-run results indicate the adverse impact only for India and the effects of tax revenue on clean energy are positively significant in Sri Lanka while negatively signiicant in Nepal and Bangladesh. Institutional quality significantly increases clean energy in Pakistan, India, and Nepal. However, in the case of Pakistan and Nepal, institutional quality deteriorated the environmental quality. The results for the pollution model confer that shadow economy increases emissions in Pakistan, decreases in Bangladesh and Nepal, and has no effect in India and Sri Lanka. The nonlinear ARDL results reveal that the positive components of the shadow economy significantly increase clean energy consumption only in Pakistan; however, the negative components of the shadow economy are negatively significant in all countries except Sri Lanka and Nepal. However, the negative component of the informal sector of the economy reduces CO2 emissions in India and increases CO2 emissions in Bangladesh and Nepal. The results offer important policy implications for achieving clean energy and better environmental quality in South Asian countries.

Dark Web Marketplaces and COVID-19: before the vaccine.

The COVID-19 pandemic has reshaped the demand for goods and services worldwide. The combination of a public health emergency, economic distress, and misinformation-driven panic have pushed customers and vendors towards the shadow economy. In particular, dark web marketplaces (DWMs), commercial websites accessible via free software, have gained significant popularity. Here, we analyse 851,199 listings extracted from 30 DWMs between January 1, 2020 and November 16, 2020. We identify 788 listings directly related to COVID-19 products and monitor the temporal evolution of product categories including Personal Protective Equipment (PPE), medicines (e.g., hydroxyclorochine), and medical frauds. Finally, we compare trends in their temporal evolution with variations in public attention, as measured by Twitter posts and Wikipedia page visits. We reveal how the online shadow economy has evolved during the COVID-19 pandemic and highlight the importance of a continuous monitoring of DWMs, especially now that real vaccines are available and in short supply. We anticipate our analysis will be of interest both to researchers and public agencies focused on the protection of public health.

Mitigating the shadow economy through financial sector development in Indonesia: some empirical results.

We examine the relationship between financial sector development and the shadow economy in Indonesia from 1980 to 2020. We estimate the size of Indonesia's shadow economy using the "Modified Cash to Deposits Ratio" approach. We then construct a long-term model using the size of Indonesia's shadow economy as the dependent variable. We set financial sector development as the main independent variable in our model. We use per capita real gross domestic product, the misery index, and foreign direct investment as control variables in our model. We find that financial sector development and the size of Indonesia's shadow economy have a nonlinear relationship that shows an inverted U-shape curve. The size of the shadow economy expands at the early stages of financial sector development to a turning point and decreases when financial sector development increases further. We also find that foreign direct investment curtails Indonesia's shadow economy. Additionally, increases in income expand Indonesia's shadow economy while misery index shows ambiguous results. We suggest the Indonesian authorities widen access for micro, small, and medium firms to the credit markets and enhance existing programs to reduce poverty and narrow the income gap in the country. These efforts help to narrow the size of Indonesia's shadow economy.