Exploring the nonlinear effect of shadow economies on sustainable development in Africa: does the level of financial market development matter?
Date
2023
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Journal of Financial Economic Policy
Abstract
Purpose – This study aims to examine the nonlinear threshold effect of shadow economy on sustainable
development in Africa while providing additional evidence on how this nonlinear threshold effect play out in
economies with high and low developed financial/credit markets.
Design/methodology/approach – This study uses 37 African economies between 2009 and 2017 in a
dynamic GMM panel model that controls for country, year and technological effects to ensure consistency and
reliability of results and findings.
Findings – The results reveal that there is an inverted nonlinear U-shape nexus between the size of shadow
economy and sustainable development in both short run and long run in Africa and across economies with
high and low developed credit/financial market. Also, the threshold points beyond which the size of shadow
economies dampens sustainable development is lower for economies with high financial/credit market
development and higher in the long run.
Practical implications – These results have policy implications and recommendations and suggest that
shadow economies can be beneficial to sustainable development particularly when the size of shadow
economies are restrained from increasing beyond certain thresholds/levels. Moreso, to restrict the adverse
effect of shadow economies on sustainable development, policymakers can rely on developing their financial/
credit markets to tame the destructive nature of shadow economies on sustainable development. These results
are robust to technological, year/time and country effects.
Originality/value – To the best of the author’s knowledge, this study examines for the first in the context
of Africa, the nonlinear effect of shadow economies on sustainable development under low and high
developed financial markets
Description
Research Article
Keywords
Financial markets, Sustainable development, Shadow economy