Linking shadow economy and CO2 emissions in Nigeria: Exploring the role of financial development and stock market performance. Fresh insight from the novel dynamic ARDL simulation and spectral causality approach

Abstract

First and foremost, the present study seeks to traverse the informal sector characterized by a shadow economy in the presence of financial development, economic growth, and stock market performance on environmental pollution in Nigeria from 1981 to 2019. The dynamic autoregressive distributed lag (DARDL) approach was used to measure the short- and long-run elasticities, while spectral causality is applied to categorize the causal directions. Findings from the study revealed that the structural break unit root test revealed that all variables are stationary at first difference. The ARDL bound test confirmed the existence of long-run association among the used variables. The ARDL long-run results reveal that economic growth, financial development, and stock market performance are significantly responsible for carbon emission in Nigeria, while the shadow economy significantly improves environmental quality in Nigeria. Findings from the spectral causality results show a unidirectional causal relationship between financial development, economic growth, trade, stock market performance, and shadow economy to carbon emission in Nigeria. The empirical findings of this study provide some perceptive policy recommendations to overcome the adverse effect of carbon emissions in the environment.

Asymmetric Effect of Shadow Economy on Environmental Pollution in Egypt: Evidence from Bootstrap NARDL Technique

“…The presence of a positive relationship between shadow economy and environmental quality has also been validated in a number of studies (Chen et al, 2018;. On the contrary, some other studies established a negative relationship between shadow economy and (recorded) environmental pollution level (Camara, 2022;Goel et al, 2013;Nkengfack et al, 2021;Yu et al, 2022). Notwithstanding the conflicting outcome, and the paucity of research into the relationship between shadow economy and environmental quality at the empirical front, an assessment of the extant literature suggests that emphasis has been on the symmetric relationship between shadow economy and environmental quality.…”

“…In a similar vein, a number of studies on shadow economy-environmental quality conducted at country-specific level established that shadow economy promotes environmental pollution in countries such as China, Nigeria, Pakistan, and Turkey (Baloch et al, 2022;Imamoglu, 2018;Köksal et al, 2020;Pang et al, 2021). In contrast, some authors discovered that shadow economy and environmental pollution are negatively related (Camara, 2022;Goel et al, 2013;Nkengfack et al, 2021;Yu et al, 2022). In other words, the studies suggest that countries with large shadow economic activities are associated with lower (recorded) environmental pollution levels.…”

Financial development and real exchange rate misalignments effects on environmental pollution

“…They can improve the long-run model's accuracy by using the ARDL method. Carbon emission in Nigeria may largely be attributed to economic growth, financial development, and stock market performance, as shown by the ARDL long-run findings (Yu et al, 2022). According to Behera and Dash (2017), who used the FMOLS and DOLS estimators, there is a positive correlation between FDI and CO 2 emissions.…”

An Evaluation of the Energy-Related Carbon Dioxide Emissions From China’s Light Sector to Achieve Sustainable Development Goals

“…Fossil fuel-based energy consumption threatens global sustainability (Alam et al, 2022; Pachiyappan et al, 2021; Jahanger et al, 2022a; Yang et al, 2023a). Reducing energy consumption to curtail environmental hazards is not a viable solution as energy is the primary input in all production processes (Yu et al, 2022a; Li et al, 2022). The United Nations General Assembly (UNGA) set various Sustainable Development Goals (SDGs) in 2015 to ensure a sustainable future.…”