Environmental foe or friend: The influence of the shadow economy on forest land

Previous studies indicate that the shadow economy is truly an environmental foe, with positive linkages with energy intensity, air pollution, and emissions. This study extends the literature by considering the environmental influence of the shadow economy on one of the most important components of the ecosystem, the forest. The analysis is carried out for a global sample of 148 countries from 1991 to 2017 using various panel techniques. Analyses are also conducted for four subsamples by income level and seven subsamples by region. The results are robust and consistent. Increases in the shadow economy seem, surprisingly, to have a positive impact on forest land in the short run. The effects are documented as consistent across four income groups and six out of seven sub-regions. However, the shadow economy appears to exacerbate deforestation in the long run. The results reveal asymmetric linkages between the shadow economy and forest area. More attention is then given to the consequences of the shadow economy on forest reservation, especially for long-term policy setting.