The impact of the informal economy and corruption on environmental change in Central Asian, South East Asian and South East European countries

Abstract

This paper is intended to develop a simple framework for analyzing the links between the environmental change, the informal economy and corruption. The study focuses on environmental change caused by carbon dioxide (CO2) emissions, and therefore examines a key indicator of environmental degradation a carbon dioxide emissions taking into an account the informal economy and corruption for a panel of 4 Central Asian countries, 8 Southeast Asian countries and 12 Southeast European countries over the period 2008-2018. The theoretical model predicts that informal economy and corruption contributes to carbon dioxide emissions, which cause environmental change. To test the prediction utilized longitudinal data over time for selected group of countries based on fixed effects model in order to capture unobservable time-invariant country characteristics and shocks, and to avoid biasness. The research focused on environmental degradation in the form of greenhouse gas emissions caused by the informal economy and corruption aimed to test previous theories on the topic and seek additional results to fill up knowledge gap. Thus, chosen as the main theory the model of A.K. Biswas et al. showed the significant positive effect of informal economy and corruption on air pollution and environmental change. However, the final estimation undertaken in this paper showed that informal economy and corruption itself do not contribute to carbon dioxide emissions and therefore do not cause environmental degradation, while energy intensity is a key factor of CO2 emissions and plays a pivotal role in maintaining sustainable environment. In conclusion, the results are followed by some policy recommendations that take into account the relevance of environmental regulations for all selected countries.