The asymmetric role of shadow economy in the energy-growth nexus in Bolivia

Abstract

This paper estimates the energy demand function to examine the asymmetric relationship between the shadow economy and energy consumption in the case of Bolivia during the period of 1960–2015. The ambiguous empirical findings on shadow economy-energy demand nexus has inclined us to apply the nonlinear ARDL cointegration approach developed by Shin et al. (2014) and the Hatemi-J (2012) asymmetric causality test. The empirical evidence confirms the presence of an asymmetric relationship between the variables of interest. Positive and negative shocks to official GDP (true GDP) and the shadow economy have positive impacts on energy consumption. Energy consumption is positively and negatively affected by positive and negative shocks in financial development, respectively. A positive (negative) shock to capital decreases energy consumption. Another important finding concerns the complex causal direction between economic growth and energy consumption. This study provides new insights regarding to the use of official GDP (true GDP) and the shadow economy as economic tools to maintain energy demand for sustainable economic development.