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Do Shadow Economy and Institutions Lessen the Environmental Pollution? Evidence from Panel of ASEAN-9 Economies

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Abstract

Southeast Asian countries have experienced a significant level of economic growth over the years but have not managed to safeguard their environmental attributes in tandem. The shadow economy is seen as one of the main factors which can significantly affect environmental quality. However, bringing the shadow economy in the picture, the institutional quality plays a critical role on environmental pollution. This study explores the effects of the shadow economy and institutions on environmental pollution in ASEAN-9 countries by applying the second-generation panel techniques using annual data. The second-generation panel unit root tests show the unique order of integration in series. The long-run cointegrating association exists among variables using Pedroni, Kao, and Westerlund panel cointegration tests. Moreover, the long-run elasticity is estimated using the ARDL approach and confirms an N-shaped EKC hypothesis in ASEAN-9 countries. Our empirical results also reveal that financial development and energy consumption significantly and positively effect environmental pollution. However, institution quality has an insignificant impact and the shadow economy significantly lessen environmental pollution. Finally, the causal interaction pathways are identified by using the D-H panel causality test. In addition, a unidirectional causality has been found from financial development to ecological footprint, shadow economy, and economic growth. Furthermore, institutional quality causes an ecological footprint. Consequently, robust regulating policies should be implemented to reduce the size of the informal economy to prevent environmental degradation. Furthermore, the ASEAN governments should finance energy infrastructure development to improve renewable production capacities with zero emissions.

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Data Availability

The data is available from the World Bank data bank (https://data.worldbank.org/country ). Furthermore, the other sources of data are also cited within the text.

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Author notes

  1. Shamaila Butt & Muhammad Ali Chohan

    Present address: Faculty of Management and Administrative Sciences, University of Sialkot, 1-Km Main, Daska Rd, Sialkot, Punjab, 51040, Pakistan

Authors and Affiliations

  1. Faculty of Management, Universiti Teknologi Malaysia (UTM), Johor Bahru, Johor, 81310, Malaysia

    Shamaila Butt, Muhammad Ali Chohan, Adnan Ali & Suresh Ramakrishnan

  2. Institute of Business Studies and Leadership, Faculty of Business and Economics, Abdul Wali Khan University, Mardan, KP, Pakistan

    Faisal FAISAL

  3. Department of Management Sciences, Shaheed Benazir Bhutto University, Sheringal, Dir Upper, Khyber Pakhtunkhwa, Pakistan

    Adnan Ali

Authors
  1. Shamaila Butt
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  2. Faisal FAISAL
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  3. Muhammad Ali Chohan
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  4. Adnan Ali
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  5. Suresh Ramakrishnan
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Contributions

SB, FF, and MAC with AA together proposed the subject of the article and determined the necessary strategies to investigate the direction of the manuscript and performed the empirical analysis to prepare the results of the study. SB and FF facilitated the team for data collection. SB, FF, and SR proofread the manuscript.

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Correspondence to Faisal FAISAL.

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Butt, S., FAISAL, F., Chohan, M.A. et al. Do Shadow Economy and Institutions Lessen the Environmental Pollution? Evidence from Panel of ASEAN-9 Economies. J Knowl Econ (2023). https://doi.org/10.1007/s13132-023-01217-9

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  • DOI: https://doi.org/10.1007/s13132-023-01217-9

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