Black Shadow: Effect of Energy Poverty on the Informal Economy in Developing Countries
Article Sidebar
Main Article Content
Abstract
Energy poverty is a major problem in developing countries, with informal businesses often forced to use inefficient generators or equipment to produce electricity, which can lead to high production costs and lower productivity. As a result, these businesses may be less competitive on the market, which may lead them to operate informally to avoid the high costs associated with regulation and taxes. The aim of this paper is to assess the effect of fuel poverty on the informal sector in developing countries. We start from a sample of 95 developing countries, over the period 1993-2017, specify and estimate a static and dynamic model by Robust Pooled Ordinary Least Squares (Robust POLS) and System Generalized Method of Moments (sGMM). The results suggest that energy poverty increases informality in developing countries. The analysis remains robust to the consideration of disaggregated indices of fuel poverty, and alternative measures. The mediation analysis suggests that the effect passes through several mediators. Our policy recommendation is to improve access to clean energy and electricity for developing countries, which has an impact on informal entrepreneurship.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
References
Andreas, Peter. “Illicit international political economy: the clandestine side of globalization.” Review of International Political Economy, vol. 11, no. 3, 2004, pp. 641-652. DOI: 10.1080/0969229042000252936. DOI: https://doi.org/10.1080/0969229042000252936
Ang, James B. “Are modern financial systems shaped by state antiquity?” Journal of Banking & Finance, vol. 37, 2013, pp. 4038-4058. DOI: 10.1016/j.jbankfin.2013.07.023. DOI: https://doi.org/10.1016/j.jbankfin.2013.07.023
Arellano, Manuel, and Stephen Bond. “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations.” The Review of Economic Studies, vol. 58, no. 2, 1991, pp. 277-297. DOI: 10.2307/2297968. DOI: https://doi.org/10.2307/2297968
Arellano, Manuel, and Olympia Bover. “Another look at the instrumental variable estimation of error-components models.” Journal of Econometrics, vol. 68, no. 1, 1995, pp. 29-51. DOI: 10.1016/0304-4076(94)01642-D. DOI: https://doi.org/10.1016/0304-4076(94)01642-D
Basbay, Melih M., Cem Elgin, and Osman Torul. “Energy consumption and the size of the informal economy.” Economics, vol. 10, no. 1, 2016. DOI: 10.5018/economics-ejournal.ja.2016-14. DOI: https://doi.org/10.5018/economics-ejournal.ja.2016-14
Bhattacharya, Rabindra. “ICT solutions for the informal sector in developing economies: What can one expect?” The Electronic Journal of Information Systems in Developing Countries, vol. 85, no. 3, 2019, p. e12075. DOI: 10.1002/isd2.12075. DOI: https://doi.org/10.1002/isd2.12075
Blanton, Robert G., and Dursun Peksen. “Natural resource wealth and the informal economy.” International Political Science Review, 2021, p. 0192512121991973. DOI: 10.1177/01925121219919. DOI: https://doi.org/10.1177/0192512121991973
Blimpo, Moussa, John T. Mensah, Ken Opalo, and Rui Shi. “Electricity provision and tax mobilization in Africa.” World Bank Policy Research Working Paper, no. 8408, 2018.
Blundell, Richard, and Stephen Bond. “Initial conditions and moment restrictions in dynamic panel data models.” Journal of Econometrics, vol. 87, no. 1, 1998, pp. 115-143. DOI: 10.1016/S0304-4076(98)00009-8. DOI: https://doi.org/10.1016/S0304-4076(98)00009-8
Bond, Stephen R., Anke Hoeffler, and Jonathan R. Temple. “GMM estimation of empirical growth Models.” Available at SSRN, 2001, p. 290522.
Butera, Federico M., Pasquale Caputo, R. S. Adhikari, and Roberto Mele. “Energy access in informal settlements: Results of a wide on-site survey in Rio De Janeiro.” Energy Policy, vol. 134, 2019, p. 110943. DOI:10.1016/J.ENPOL.2019.110943. DOI: https://doi.org/10.1016/j.enpol.2019.110943
Cule, Monika, and Murray Fulton. “Some implications of the unofficial economy-bureaucratic corruption relationship in transition countries.” Economics Letters, vol. 89, no. 2, 2005, pp. 207-211. DOI: 10.1016/j.econlet.2005.05.027. DOI: https://doi.org/10.1016/j.econlet.2005.05.027
Dreher, Axel, and Friedrich Schneider. “Corruption and the shadow economy: an empirical analysis.” Public Choice, vol. 144, 2010, pp. 215-238. DOI : 10.1007/s11127-009-9513-0. DOI: https://doi.org/10.1007/s11127-009-9513-0
Elbahnasawy, Nasr G., Michael A. Ellis, and Anokye D. Adom. “Political instability and the informal economy.” World Development, vol. 85, 2016, pp. 31-42. DOI: 10.1016/j.worlddev.2016.04.009. DOI: https://doi.org/10.1016/j.worlddev.2016.04.009
Elgin, Ceyhun, and Fikret Erturk. “Informal economies around the world: measures, determinants and consequences.” Eurasian Economic Review, vol. 9, 2019, pp. 221-237. DOI:10.1007/S40822-018-0105-5. DOI: https://doi.org/10.1007/s40822-018-0105-5
Elgin, Ceyhun, M. Ayhan Kose, Franziska Ohnsorge, and Shu Yu. “Understanding informality.” C.E.P.R. Discussion Paper no. 16497, Centre for Economic Policy Research, London, 2021. DOI: 10.2139/ssrn.3916568. DOI: https://doi.org/10.2139/ssrn.3916568
Fakira, F. Energy for Microenterprises. 1994.
Friedman, Eric, et al. “Dodging the grabbing hand: the determinants of unofficial activity in 69 countries.” Journal of Public Economics, vol. 76, no. 3, 2000, pp. 459-493. DOI10.1016/S0047-2727(99)00093-6. DOI: https://doi.org/10.1016/S0047-2727(99)00093-6
International Labour Office. Women and Men in the Informal Economy: A Statistical Brief. ILO, Geneva, 2019, p. 20.
Johnson, Simon, Daniel Kaufmann, and Pablo Zoido-Lobatón. Corruption, Public Finances and the Unofficial Economy. The World Bank, discussion paper, 1998.
Johnson, Simon, Daniel Kaufmann, and Pablo Zoido-Lobatón. “Regulatory discretion and the unofficial economy.” The American Economic Review, vol. 88, no. 2, 1998, pp. 387-392.
Kiaga, Alice, and Vivian Leung. “The transition from the informal to the formal economy in Africa.” Global Employment Policy Review, Background Paper, no. 2, 2020.
Lippert, Owen, and Michael Walker, editors. The Underground Economy: Global Evidence of Its Size and Impact. The Fraser Institute, 1997.
Little, I. M. D., et al. Small Manufacturing Enterprises. Oxford University Press, 1987. DOI: https://doi.org/10.1093/wber/1.2.203
Matthews, K. “National income and the black economy.” Economic Affairs, vol. 3, no. 4, 1983, pp. 261-267. DOI: 10.1111/j.1468-0270.1983.tb01521.x. DOI: https://doi.org/10.1111/j.1468-0270.1983.tb01521.x
Medina, Leandro, and Friedrich Schneider. “Shadow economies around the world: new results for 158 countries over 1991-2015.” 2017. DOI:10.2139/ssrn.2965972. DOI: https://doi.org/10.2139/ssrn.2965972
Medina, Leandro, and Manuela F. Schneider. “Shadow economies around the world: what did we learn over the last 20 years?” International Monetary Fund, 2018. DOI: https://doi.org/10.2139/ssrn.3124402
Motta, Marialuz, and Karsten Reiche. “Rural electrification, micro-finance and micro and small business (MSB) development: Lessons for the Nicaragua off-grid rural electrification project.” World Bank, 2001.
Ndoya, Hervé. “Urbanization, governance and informal economy: an African tale.” Economics Bulletin, vol. 41, no. 3, 2021, pp. 1525-1540.
Ndoya, Hervé, Daniel Okere, Marie laure Belomo, and Marcel Atangana. “Does ICTs decrease the spread of informal economy in Africa?” Telecommunications Policy, vol. 47, no. 2, 2023, p. 102485. DOI: 10.1016/j.telpol.2022.102485. DOI: https://doi.org/10.1016/j.telpol.2022.102485
Neelsen, Sven, and Jörg Peters. “Electricity usage in micro-enterprises—Evidence from Lake Victoria, Uganda.” Energy for Sustainable Development, vol. 15, no. 1, 2011, pp. 21-31. DOI: 10.1016/j.esd.2010.11.003. DOI: https://doi.org/10.1016/j.esd.2010.11.003
Nguimkeu, Pierre, and Célestin Okou. “Does informality increase the spread of COVID-19 in Africa? A Cross-Country Examination.” Applied Economics Letters, vol. 29, no. 12, 2022, pp. 1111-1115. DOI: 10.1080/13504851.2021.1910128. DOI: https://doi.org/10.1080/13504851.2021.1910128
Ningaye, Pascal, and Ibrahima Ketu. “Does infrastructure development matter for the shadow economy in African countries?” International Review of Applied Economics, 2023, pp. 1-21. DOI: 10.1080/02692171.2023.2197642. DOI: https://doi.org/10.1080/02692171.2023.2197642
Peter-Cookey, Mark A., and Kasama Janyam. “Reaping just what is sown: Low-skills and low-productivity of informal economy workers and the skill acquisition process in developing countries.” International Journal of Educational Development, vol. 56, 2017, pp. 11-27. DOI: 10.1016/j.ijedudev.2017.07.005. DOI: https://doi.org/10.1016/j.ijedudev.2017.07.005
Pondie, Thierry M., Flore D. Engwali, Benjamin E. O. Nkoa, and Eric N. Domguia. “Does energy poverty increase starvation? Evidence from Sub-Saharan Africa.” Environmental Science and Pollution Research, vol. 30, no. 17, 2023, pp. 48721-48738. DOI: 10.1016/j.energy.2024.131158. DOI: https://doi.org/10.1007/s11356-023-25997-4
Rangaswamy, Nimmi. “A note on informal economy and ICT.” The Electronic Journal of Information Systems in Developing Countries, vol. 85, no. 3, 2019, p. e12083. DOI: 10.1002/isd2.12083. DOI: https://doi.org/10.1002/isd2.12083
Roodman, David. “A note on the theme of too many instruments.” Oxford Bulletin of Economics and Statistics, vol. 71, no. 1, 2009, pp. 135-158. DOI: 10.1111/j.1468-0084.2008.00542.x. DOI: https://doi.org/10.1111/j.1468-0084.2008.00542.x
Schneider, Friedrich, and Dominik H. Enste. “Shadow economies: Size, causes, and consequences.” Journal of Economic Literature, vol. 38, no. 1, 2000, pp. 77-114. DOI: https://doi.org/10.1257/jel.38.1.77
Schneider, Friedrich, and Robert Klinglmair. “Shadow economies around the world: What do we know?” Available at SSRN, 2004, p. 518526. DOI: 10.2139/ssrn.518526. DOI: https://doi.org/10.2139/ssrn.518526
Smith, Lorna N., Martin Lawrence, S. Martin Kerr, Peter Langhorne, and K. R. Lees. “Informal carers’ experience of caring for stroke survivors.” Journal of Advanced Nursing, vol. 46, no. 3, 2004, pp. 235-244. DOI: 10.1111/j.1365-2648.2004.02983.x. DOI: https://doi.org/10.1111/j.1365-2648.2004.02983.x
Timmons, Jeffrey F., and Francisco Garfias. “Revealed corruption, taxation, and fiscal accountability: Evidence from Brazil.” World Development, vol. 70, 2015, pp. 13-27. DOI: 10.1016/j.worlddev.2014.12.011. DOI: https://doi.org/10.1016/j.worlddev.2014.12.011