How does ICT affect the shadow economy towards environmental preservation? Evidence from a panel of developing and developed nations

Despite the increasing size of the shadow economy worldwide, more particularly for developing economies, limited scientific attention has been devoted to exploring its diverse impacts, such as the harmful environmental issues that could arise from informal activities. This study aims to investigate ICT impacts of the shadow sector on the environment using two-step system GMM method for two panels of 57 developing and 34 developed nations, spanning the years from 1998 to 2015. Two measures for the dependent variable are used: CO2 emissions from transport activity and liquid energy demand. The size of the shadow economy and ICT are used as independent variables. The empirical evidence suggests four main results. First, the shadow economy harms the environment in the context of developed nations; however, it can reduce environmental degradation in developing economies. Second, ICT hurts the environment for all countries except telephone usage, which favors ecological quality in developing economies. Third, the association between ICT and the shadow economy positively affects the environment in developed countries, but it becomes very weak in developing ones. Fourth, the telephone is the most efficient technology for reducing air pollution in developed economies when adopted in the shadow sector. Public policy should encourage the adoption of new technologies in the shadow sector and the regularization of informal activities in developed economies to mitigate carbon emissions.