Analyzing the role of shadow and official economies on energy demand in the United Arab Emirates: An (a) symmetric approach

Abstract

The determinants of energy demand remain an open question in the literature. Hence, this study expands the energy demand function by examining the role of the shadow economy in such a nexus. Specifically, the study scrutinises the (a) symmetric impacts of shadow and official economies on the energy demand of the United Arab Emirates between 1991 and 2017. The study's objectives were analysed using the linear and nonlinear autoregressive distributed lag. The conclusion from the linear ARDL hints that the shadow economy, energy price, and financial development reduce energy demand. In contrast, the official economy positively influences energy demand in both periods. The asymmetric result reveals that positive and negative shocks in the shadow economy raise energy demand. Meanwhile, positive shocks in the official economy spur energy demand, while negative changes reduce the demand for energy in both periods. Furthermore, energy price, financial development, and urbanisation reduce energy demand in the asymmetric model. The study's outcome implies that both shadow and formal economies intensify energy demand in the UAE. The implications of the result for sustainable development are discussed.