How Does the Shadow Economy Affect Environmental Quality in Sub-Saharan Africa? Evidence from Heterogeneous Panel Estimations.

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-middle-income countries. Consistent with the scale effect, our findings suggest that there is no evidence that the shadow economy increases environmental degradation in SSA. [ABSTRACT FROM AUTHOR]