Impact of the informal economy on the ecological footprint: The role of urban concentration and globalization

The informal economy represents about a third of world output, thus, generating serious challenges for attaining environmental sustainability. Although there are several indicators of environmental sustainability, the ecological footprint is the most holistic proxy for the capturing the state of environmental degradation. Hence, this research examines the impact of the informal economy, urban concentration, and globalization on the ecological footprint during 1990–2018 period. A balanced panel dataset concerning 95 countries is employed and the second-generation cointegration techniques and regression methods such as the AMG, CCE-MG, and DCCE are utilized. The results show a long-run equilibrium relationship between the series of concern. Besides, it is found that the long-run elasticity of ecological footprint to a positive change in the size of the informal economy is greater than the corresponding short-run elasticity. These results suggest that the adverse impacts of the informal economy on the ecological footprint are cumulative over time, thus, putting environmental sustainability at risk. In addition, the causality test results indicate that informal economy, urban population, and the globalization index have limited causal relationships with ecological footprint. Hence, those responsible for the environmental policy making must differentiate the impact in the short and long-run in order to strategize the mechanisms through which the ecological footprints can be mitigated in the long-run.