Informal economies and energy efficiency: Empirical evidence from African countries

Okwoche, Princewill and Ščasný, Milan and Karimu, Amin (2025) Informal economies and energy efficiency: Empirical evidence from African countries. Renewable and Sustainable Energy Reviews, 214. p. 115518. ISSN 1364-0321

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Abstract

Pervasive informal economies can significantly hinder efforts to improve energy efficiency. This study investigates the complex relationship between informality and energy efficiency in African countries, focusing on linear, nonlinear, and asymmetric effects. The research aims to clarify how varying levels of informality affect energy efficiency and the intervening roles of foreign direct investment (FDI) and institutional quality. Employing a panel dataset of 46 African countries from 1990 to 2017, the study utilizes Stochastic Frontier Analysis to derive energy efficiency scores. It applies panel autoregressive distributed lag and the dynamic panel threshold models to assess the effects of informality. Findings from the linear model reveal that informality may have some initial beneficial effects on energy efficiency. Further evidence of nonlinearity is strongly supported, showing that informality may improve energy efficiency only up to a threshold of between 41 and 42 % of GDP, beyond which it becomes detrimental to its performance. Similarly, compelling evidence of asymmetric effects is reported: positive and negative shocks have increasing and decreasing effects on energy efficiency, respectively. Additional evidence indicates that FDI lowers energy efficiency, whereas governance quality is associated with improved energy efficiency. Lastly, FDI mitigates the negative effect of informality in line with the halo effect. These results reflect the heterogeneous effects of informality that have been reported by prior studies. Policy recommendations based on these findings are discussed.

Item Type:	Article
Identification Number:	10.1016/j.rser.2025.115518
Dates:	Date Event 17 February 2025 Accepted 3 March 2025 Published Online
Uncontrolled Keywords:	Informal economy, Energy efficiency, Stochastic frontier analysis, Panel ARDL, Dynamic panel threshold model, African economies
Subjects:	CAH15 - social sciences > CAH15-02 - economics > CAH15-02-01 - economics
Divisions:	Faculty of Business, Law and Social Sciences > College of Accountancy, Finance and Economics
Depositing User:	Gemma Tonks
Date Deposited:	21 May 2025 14:00
Last Modified:	21 May 2025 14:00
URI:	https://www.open-access.bcu.ac.uk/id/eprint/16392

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