How Does the Shadow Economy Affect Environmental Quality in Sub-Saharan Africa? Evidence from Heterogeneous Panel Estima
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How Does the Shadow Economy Affect Environmental Quality in Sub-Saharan Africa? Evidence from Heterogeneous Panel Estimations Hilaire Nkengfack 1 & Hervé Kaffo Fotio 2 & Armand Totouom 1 Received: 20 September 2019 / Accepted: 18 August 2020/ # Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract This paper empirically examines how the size of the shadow economy affects environmental quality in sub-Saharan Africa (SSA). We apply the autoregressive distributed lag (ARDL) methodology to a panel of 22 SSA countries over the 1991–2015 period. Findings show that there is a negative relationship between the size of the shadow economy (in percentage of GDP) and CO2 emission both in the long and short run. Also, the size of shadow economy is found to be inversely related to CO2 emission in the long run for all income groups, but this effect is statistically significant only within the subpanel of lower-middleincome countries. Consistent with the scale effect, our findings suggest that there is no evidence that the shadow economy increases environmental degradation in SSA. Keywords Shadow economy . CO2 emissions . Sub-Saharan Africa Jel Codes O17 . O13 . Q53
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s13132-02000685-7) contains supplementary material, which is available to authorized users.
* Hilaire Nkengfack [email protected]; hilaire.nkengfack@univ–dschang.org Hervé Kaffo Fotio [email protected]; [email protected] Armand Totouom [email protected]; [email protected]
1
Faculty of Economics and Management, University of Dschang, Dschang, Cameroon
2
Faculty of Economics and Management, University of Maroua, Maroua, Cameroon
Journal of the Knowledge Economy
Introduction Informality exists in all economies, regardless of the level of development. Of firms around the world, 54.3% are competing against informal or unregistered firms (The World Bank Group 2020). Also, more than 60% of the world’s employed work in the informal economy (International Labour Organization 2018). However, the shadow economy is more prevalent in developing countries where informal companies account for up to half of global economic activity (La Porta and Shleifer 2014). In sub-Saharan Africa (SSA), around 89% of total employment from 2000 to 2016 were informal sector jobs (Nguimkeu and Okou 2019) whereas the size of the shadow economy is estimated at about 35.76% of official GDP in 2015 (Medina and Schneider 2018). The largest and the smallest sizes are registered in Zimbabwe and Mauritius, where the informal economy respectively represents 67% and 19.23% of the official GDP. Except Mauritius, Namibia, South Africa and Botswana, the proportion of the shadow economy in GDP for the remaining SSA countries is higher than the world’s average of 28.78% of the world’s GDP (Medina and Schneider 2018). Several studies have been undertaken by scholars to highlight the drivers of informality. Some of the determinants identified include over- regulation,
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