IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v17y2025i12p5241-d1673266.html
   My bibliography  Save this article

The Dark Side of Growth: Are Shadow Economies Undermining the Global Climate Goal?

Author

Listed:
  • Oana Ramona Lobont

    (Department of Finance, Business Information Systems and Modelling, Faculty of Economics and Business Administration, West University of Timisoara, 300223 Timisoara, Romania)

  • Nicoleta Mihaela Doran

    (Department of Finance, Banking and Economic Analysis, Faculty of Economics and Business Administration, University of Craiova, 200585 Craiova, Romania)

  • Sorana Vatavu

    (Department of Finance, Business Information Systems and Modelling, Faculty of Economics and Business Administration, West University of Timisoara, 300223 Timisoara, Romania)

  • Mariana Alexandra Barbulescu

    (Sustainable Finance Programme, Faculty of Economics and Business Administration, West University of Timisoara, 300223 Timisoara, Romania)

  • Florin Costea

    (Doctoral School of Economics and Business Administration, West University of Timisoara, 300223 Timisoara, Romania)

  • Gabriela Badareu

    (Department of Finance, Banking and Economic Analysis, Faculty of Economics and Business Administration, University of Craiova, 200585 Craiova, Romania)

Abstract

This study investigates the underexplored relationship between the shadow economy and environmental degradation and governance within the European Union, focusing on CO 2 and GHG emissions, and climate-related natural disasters, from 2012 to 2021. Employing both panel data econometrics and Elastic Net regularisation, the analysis reveals asymmetric effects: while a larger shadow economy is associated with lower reported GHG emissions, likely due to underreporting or less energy-intensive activities, it simultaneously increases vulnerability to climate-induced disasters. Furthermore, environmental taxes, although effective in mitigating emissions, show limited impact on disaster frequency, suggesting that fiscal instruments alone may be insufficient to foster climate resilience. Economic prosperity correlates with higher emissions and greater climate risk, highlighting a trade-off between growth and sustainability. The findings underscore the necessity of integrating informal economic activities into environmental governance frameworks, particularly in the context of the European Green Deal. Recognising and regulating the environmental footprint of the shadow economy is essential for achieving comprehensive and equitable climate goals. Future research should explore the role of institutional quality and fiscal transparency in moderating the environmental effects of informality. Overall, this study calls for a rethinking of climate policies to include both the formal and informal dimensions of economic activity.

Suggested Citation

  • Oana Ramona Lobont & Nicoleta Mihaela Doran & Sorana Vatavu & Mariana Alexandra Barbulescu & Florin Costea & Gabriela Badareu, 2025. "The Dark Side of Growth: Are Shadow Economies Undermining the Global Climate Goal?," Sustainability, MDPI, vol. 17(12), pages 1-25, June.
  • Handle: RePEc:gam:jsusta:v:17:y:2025:i:12:p:5241-:d:1673266
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/17/12/5241/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/2071-1050/17/12/5241/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ang, James B., 2007. "CO2 emissions, energy consumption, and output in France," Energy Policy, Elsevier, vol. 35(10), pages 4772-4778, October.
    2. Yi Wang & Valentin Marian Antohi & Costinela Fortea & Monica Laura Zlati & Reda Abdelfattah Mohammad & Farah Yasin Farah Abdelkhair & Waqar Ahmad, 2024. "Shadow Economy and Environmental Sustainability in Global Developing Countries: Do Governance Indicators Play a Role?," Sustainability, MDPI, vol. 16(22), pages 1-23, November.
    3. Jan Schnellenbach, 2006. "Tax Morale and the Taming of Leviathan," Constitutional Political Economy, Springer, vol. 17(2), pages 117-132, June.
    4. Stern, David I., 2004. "The Rise and Fall of the Environmental Kuznets Curve," World Development, Elsevier, vol. 32(8), pages 1419-1439, August.
    5. Jinhua Shao & Brayan Tillaguango & Rafael Alvarado & Santiago Ochoa-Moreno & Johanna Alvarado-Espejo, 2021. "Environmental Impact of the Shadow Economy, Globalisation, Trade and Market Size: Evidence Using Linear and Non-Linear Methods," Sustainability, MDPI, vol. 13(12), pages 1-20, June.
    6. Goel, Rajeev K. & Saunoris, James W., 2020. "Spatial spillovers of pollution onto the underground sector," Energy Policy, Elsevier, vol. 144(C).
    7. Ren, Yi-Shuai & Ma, Chao-Qun & Apergis, Nicholas & Sharp, Basil, 2021. "Responses of carbon emissions to corruption across Chinese provinces," Energy Economics, Elsevier, vol. 98(C).
    8. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    9. Gene M. Grossman & Alan B. Krueger, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 353-377.
    10. Waqar Ahmad & Babar Hussain, 2024. "Shadow Economy and Environmental Pollution Nexus in Developing Countries: What is the Role of Corruption?," International Economic Journal, Taylor & Francis Journals, vol. 38(2), pages 293-311, April.
    11. Hui Zou & Trevor Hastie, 2005. "Addendum: Regularization and variable selection via the elastic net," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 67(5), pages 768-768, November.
    12. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    13. Hui Zou & Trevor Hastie, 2005. "Regularization and variable selection via the elastic net," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 67(2), pages 301-320, April.
    14. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    15. Ranjan, Ram, 2018. "The role of political-industry nexus in promoting illegal extraction of mineral resources and deforestation: A case of iron ore mining in Goa," Resources Policy, Elsevier, vol. 57(C), pages 122-136.
    16. Ceyhun Elgin & Oguz Oztunali, 2012. "Shadow Economies around the World: Model Based Estimates," Working Papers 2012/05, Bogazici University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bella, Giovanni & Massidda, Carla & Mattana, Paolo, 2014. "The relationship among CO2 emissions, electricity power consumption and GDP in OECD countries," Journal of Policy Modeling, Elsevier, vol. 36(6), pages 970-985.
    2. Abdelaziz Boukhelkhal, 2022. "Energy use, economic growth and CO2 emissions in Africa: does the environmental Kuznets curve hypothesis exist? New evidence from heterogeneous panel under cross-sectional dependence," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(11), pages 13083-13110, November.
    3. Iftikhar Yasin & Nawaz Ahmad & M. Aslam Chaudhary, 2020. "Catechizing the Environmental-Impression of Urbanization, Financial Development, and Political Institutions: A Circumstance of Ecological Footprints in 110 Developed and Less-Developed Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 147(2), pages 621-649, January.
    4. Donatella Baiardi, 2012. "Innovation and the environmental Kuznets curve: the case of CO, NMVOCs and SOx in the Italian regions," Quaderni di Dipartimento 156, University of Pavia, Department of Economics and Quantitative Methods.
    5. Ozcan, Burcu, 2013. "The nexus between carbon emissions, energy consumption and economic growth in Middle East countries: A panel data analysis," Energy Policy, Elsevier, vol. 62(C), pages 1138-1147.
    6. Hatem M'henni & Mohamed El Hedi Arouri & Adel Ben Youssef & Christophe Rault, 2011. "Income Level and Environmental Quality in The MENA Countries: Discussing the Environmental Kuznets Curve Hypothesis," Working Papers 587, Economic Research Forum, revised 05 Jan 2011.
    7. Farhani, Sahbi & Mrizak, Sana & Chaibi, Anissa & Rault, Christophe, 2014. "The environmental Kuznets curve and sustainability: A panel data analysis," Energy Policy, Elsevier, vol. 71(C), pages 189-198.
    8. Arouri, Mohamed El Hedi & Ben Youssef, Adel & M'henni, Hatem & Rault, Christophe, 2012. "Energy consumption, economic growth and CO2 emissions in Middle East and North African countries," Energy Policy, Elsevier, vol. 45(C), pages 342-349.
    9. Moataz Elshimy & Khadiga M. El-Aasar, 2020. "Carbon footprint, renewable energy, non-renewable energy, and livestock: testing the environmental Kuznets curve hypothesis for the Arab world," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 22(7), pages 6985-7012, October.
    10. Luzzati, T. & Orsini, M., 2009. "Investigating the energy-environmental Kuznets curve," Energy, Elsevier, vol. 34(3), pages 291-300.
    11. Armenia Androniceanu & Irina Georgescu, 2023. "The Impact of CO 2 Emissions and Energy Consumption on Economic Growth: A Panel Data Analysis," Energies, MDPI, vol. 16(3), pages 1-17, January.
    12. Pao, Hsiao-Tien & Tsai, Chung-Ming, 2011. "Multivariate Granger causality between CO2 emissions, energy consumption, FDI (foreign direct investment) and GDP (gross domestic product): Evidence from a panel of BRIC (Brazil, Russian Federation, I," Energy, Elsevier, vol. 36(1), pages 685-693.
    13. Hakimi, Abdelaziz & Hamdi, Helmi, 2016. "Trade liberalization, FDI inflows, environmental quality and economic growth: A comparative analysis between Tunisia and Morocco," Renewable and Sustainable Energy Reviews, Elsevier, vol. 58(C), pages 1445-1456.
    14. Marc Audi & Marc Poulin & Khalil Ahmad & Amjad Ali, 2025. "Modeling Disaggregate Globalization to Carbon Emissions in BRICS: A Panel Quantile Regression Analysis," Sustainability, MDPI, vol. 17(6), pages 1-24, March.
    15. Luzzati, Tommaso & Orsini, Marco & Gucciardi, Gianluca, 2018. "A multiscale reassessment of the Environmental Kuznets Curve for energy and CO2 emissions," Energy Policy, Elsevier, vol. 122(C), pages 612-621.
    16. Rodríguez, Miguel & Pena-Boquete, Yolanda & Pardo-Fernández, Juan Carlos, 2016. "Revisiting Environmental Kuznets Curves through the energy price lens," Energy Policy, Elsevier, vol. 95(C), pages 32-41.
    17. Thomas Jobert & Fatih Karanfil & Anna Tykhonenko, 2012. "Trade and Environment: Further Empirical Evidence from Heterogeneous Panels Using Aggregate Data," GREDEG Working Papers 2012-15, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    18. Mehdi Ben Jebli & Slim Ben Youssef & Ilhan Ozturk, 2015. "The Role of Renewable Energy Consumption and Trade: Environmental Kuznets Curve Analysis for Sub-Saharan Africa Countries," African Development Review, African Development Bank, vol. 27(3), pages 288-300, September.
    19. Abid Rashid Gill & Sallahuddin Hassan & K Kuperan Viswanathan, 2019. "Is democracy enough to get early turn of the environmental Kuznets curve in ASEAN countries?," Energy & Environment, , vol. 30(8), pages 1491-1505, December.
    20. Barra, Cristian & Zotti, Roberto, 2016. "Investigating the impact of national income on environmental pollution. International evidence," MPRA Paper 74149, University Library of Munich, Germany.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:17:y:2025:i:12:p:5241-:d:1673266. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.