Threshold Effect of ICT in the Impact of the Informal Economy on CO2 Emissions

Abstract

Abstract The direct and indirect impacts of information and communication technology (ICT) on environmental pollution and carbon dioxide (CO2) emissions in developing economies are significant. This study investigates the indirect effects of ICT on CO2 emissions through the informal sector. A threshold panel model is employed to estimate the impact of ICT on the informal sector's effect on CO2 emissions in 24 high-income countries and 30 upper-middle and lower-middle income countries from 1995–2019. The findings indicate that in high-income countries, both ICT and the informal sector contribute to reducing CO2 emissions. When ICT surpasses the threshold of 64,469, the informal sector's reducing effect on CO2 emissions increases. In countries with upper-middle and lower-upper-middle incomes, ICT reduces CO2 emissions, but the informal sector increases them. ICT has two thresholds, 0.976 and 61.57, in these countries. As ICT surpasses each threshold, the incremental effect of the informal sector on CO2 emissions declines. Furthermore, the Kuznets curve is confirmed in both country groups. Energy consumption and population density have a significant positive impact on CO2 emissions.