The determinants of the energy consumption: A shadow economy-based perspective

Abstract

This study investigates the determinants of the energy consumption by integrating the influence of shadow economy through the STIRPAT framework for 115 economies over the period 1991–2014. We apply the system-GMM estimations for our dynamic panel data to examine the determinants of the energy consumption under three aspects: the level, the intensity, and the sustainability (renewable energy). The major contribution of this article is to use the STIRPAT framework to provide a holistic analysis of the determinants of the energy consumption. In this context, our key contribution is to study the influence of shadow economy on the level of energy through the lens of several common drivers of energy consumption (including income level, urbanization, industrialization in line with recent uncovered factors as trade openness and FDI) that we recruit as explanatory variables. Our main explanatory variable is the ratio of shadow economy to GDP collecting from recent study of Medina and Schneider (2018). The combined analysis of the effect of shadow economy and the drivers of energy offer significant contributions to the existing literature. Our global sample shows that a higher informal sector induces a higher level, a higher intensity, and a higher renewable energy use. A major contribution of our article is to identify a significant difference in the nature of informal sectors and its relationships with official sectors, energy consumption and environmental quality across the income levels. Our holistic study in the STIRPAT framework allows us to identify additional interesting findings related to the determinants of the energy consumption and to provide some key recommendations to policy-makers on this matter.