Impact of shadow economy on renewable and nonrenewable energy consumption in Pakistan: evidence from quantile cointegration and causality analysis.

Abstract

The objective of this study is to identify the impact of the shadow economy on renewable and nonrenewable energy consumption at aggregated and disaggregated levels over the period of 1972Q1-2018Q4 in Pakistan. This study carries nonlinear/asymmetric time series analysis such as quantile unit root test for stationary of data series, newly developed quantile cointegration (Xiao, J. Econom. 150:248-260, 2009) for existence of long-run relationships and novel quantile causality approach (Troster, Econom. Rev. 37, 850-866, 2018) are used to identify direction of causality over the quantiles. The results confirm that quantiles of shadow economy cointegrate with the quantiles of energy consumption at aggregated and disaggregated levels. The results of quantile regression show that a shadow economy has a positive and significant impact on renewable and nonrenewable energy consumption at aggregated and disaggregated levels in all quantiles starting from extreme low quantiles to extreme high quantiles. Furthermore, the results of quantile causality illustrate a unidirectional causality running from underground economy to fluctuations in renewable, nonrenewable, and total energy consumption. More specifically, disaggregated energy consumptions such as oil, gas, nuclear, hydro, and gas are also caused by shadow economy, generally in low and high tails/quantiles.