Environmental Impact of the Shadow Economy, Globalisation, Trade and Market Size: Evidence Using Linear and Non-Linear Methods

Jinhua Shao,Santiago Ochoa-Moreno,Johanna Alvarado-Espejo,Rafael Alvarado,Brayan Tillaguango

doi:10.3390/su13126539

Abstract

The achievement of the Sustainable Development Goals (SDG) related to the environment requires identifying new sources of environmental degradation. In this research, we examine the impact of the underground economy on polluting gas emissions. This relationship was estimated, including the role of globalization, trade, and market size. Using annual data from the World Bank and the International Monetary Fund, we found that, in the short term, the underground economy had a negative effect on global environmental pollution and a long-term negative impact. In the long term, the cointegration results indicate a long-term relationship between the series included in the investigation. The existence of a long-term relationship between the variables implies that as the underground economy increases, the emissions of polluting gases also change. In the long term, policymakers can use the black economy as an instrument to influence environmental pollution. Likewise, we found a threshold effect in the index of globalization, trade, and market size. The existence of a threshold effect implies that from a threshold, the impact of globalization, trade, and the size of the market on polluting emissions is more significant. Therefore, the environmental policy must consider these aspects to achieve greater effectiveness of regulation in favor of the environment. The results were stable, including the dependence of the cross-sections and the heterogeneity in the slope of the panel. Actions to mitigate polluting gas emissions should regulate informal and clandestine activities and take advantage of globalization and trade to improve the practices of companies and individuals.

Highlights

Globalization has substantially impacted economic, social, and political aspects in all countries of the world through trade, capital flows, and technology transfer [1]
Market size is the threshold variable and we found that the shadow economy, the informational globalization index, and market size have a negative impact on greenhouse gas emissions
The present study provides a significant contribution to both the literature, empirical analyses, and policymakers, since the first contribution is the inclusion of the shadow economy as a determinant of environmental pollution

Summary

Introduction

Globalization has substantially impacted economic, social, and political aspects in all countries of the world through trade, capital flows, and technology transfer [1]. Governments, to increase their income, have continuously increased the extraction and consumption of renewable and non-renewable resources [2]. Accompanied by the globalization process and the commercial exchange that the industry developed, the natural resources have become an indispensable material base for all production and consumption activities [3]. There is a close relationship between economic development, trade, urbanization, and the use of natural resources [4,5]. There has been an escalation in consumption, and in production to meet demand, which directly impacts the environment [6,7]. In the postulates of Müller–Fürstenberger & Wagner [8]

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Conclusion