The moderating role of institutional quality in shadow economy–pollution nexus in Nigeria

Abstract

PurposeThis study examines the moderating role institutional quality plays in shadow economy–environmental pollution nexus in Nigeria between 1984 and 2018. Further, the study also determines the threshold level of institutional quality that lessens shadow economy and abates environmental pollution.Design/methodology/approachShadow economy is measured as a percentage of gross domestic product (GDP) using the currency demand approach while environmental pollution is proxy by carbon dioxide (CO2) per capita. Autoregressive distributed lag (ARDL) is used as the estimation technique.FindingsResults from the study show that shadow economy has a positive and significant effect on environmental pollution both in the short and long run, while institutional quality has a negative effect on environmental pollution. This reveals that shadow economy worsens environmental quality while institutional quality abates environmental pollution. The interactive term of shadow economy with institutional quality has a negative but insignificant effect on environmental pollution in the long run. It implies that institutional quality is weak to bring about significant reduction in shadow economy and environmental pollution. Further, the threshold level of institutional quality required to lessen the effect of shadow economy and abate environmental pollution is found to be 5.69 on an ordinal scale of 0–10.Practical implicationsInstitutional quality in Nigeria is weak and needs to be strengthened up to the threshold level in order to effectively moderate the impact of shadow economy on environmental pollution.Originality/valueThe study addresses the perceived gap in the empirical literature on the emerging role of strong institution in abating environmental pollution in Nigeria. It also develops a threshold level of institutional quality capable of mediating the negative impact of shadow economy on environmental pollution. This empirical contribution is largely missing in the context of Nigeria.

Financial development–ecological footprint nexus in Malaysia: the role of institutions

“…These mixed results generated criticisms that the EKC framework failed to consider other structural, institutional, and macroeconomic variables that tend to influence the environment. Furthermore, recent studies have incorporated structural, institutional, and macroeconomic variables in testing the EKC hypothesis using CO 2 emission, nitrogen dioxide (NO2), sulphur dioxide, industrial waste, water pollution, threatened species, and deforestation to measure environmental degradation (Kubicova, 2014; Opoku and Boachie, 2020; Dada and Ajide, 2021; Akinlo and Dada, 2021; Dada and Akinlo, 2021). Nevertheless, these proxies only capture part of the environmental pollution; that is they do not represent the entire human activities on the environment.…”

“…Second, previous studies fail to examine the role of institutional quality as an absorptive capacity in the relationship between financial sector development and ecological footprint. Institutions play a crucial role in maintaining environmental quality especially in developing countries (Panayotou, 1996; Deacon, 2003; Ibrahim and Law, 2015; Dada and Ajide, 2021; Dada et al , 2021a, b). Strong institutional environment and framework facilitate efficient allocation of resources to productive activities, thus promoting environmental sustainability (Haini, 2020; Fernández and Tamayo, 2017; Law et al , 2014; Olaniyi and Oladeji, 2021).…”

Assessing the moderating effect of institutional quality on economic growth—carbon emission nexus in Nigeria

“…This makes the country one of the single largest sources of emissions in the world (Maduka et al 2021 ; Kankara 2013 ), and puts at risk, the attainment of the Zero Routine Flaring by 2030 initiative inaugurated by the World Bank and the United Nations in 2015 and backed by several energy corporations, governments and organizations (U. S. IEA 2021 ). As a result, according to the WHO ( 2018 ) and Dada and Ajide ( 2021 ), 94 percent of Nigerians are vulnerable to high levels of pollution. The amount of pollution in the country surpasses the SSA average of 72%, while the cost of air pollution impairment is roughly 1% of post-GNP.…”

The impact of ICT on shadow economy in West Africa

“…Our results show that where there is an effective regulatory framework for ICT used, it has the tendency to reduce the size of informal economy in West African countries (Remeikiene et al. 2021; Ajide 2021; Dada and Ajide 2021).…”

“…Nigeria, being the largest economy in the region has the greatest size of shadow economy with 56.65% of its GDP, while Guinea Bissau has the least size of shadow economy in the region (36.6% of GDP). The trend of the shadow economy in the region reveals that it ranges between one to two‐thirds of GDP (Medina and Schneider 2018; Dada and Ajide 2021). The presence of higher level of shadow economy has serious implications in the region.…”