Informal economy and CO₂ emissions: threshold effects of information and communication technology

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 provides a comparative analysis of the indirect effects of ICT on CO₂ emissions through the informal sector in high- and middle-income countries. A threshold panel model is employed to estimate the impact of ICT on the informal sector’s effect on CO₂ emissions in 26 high-income countries and 24 middle-income countries from 1995 to 2019. The findings indicate that in high-income countries, both ICT and the informal sector contribute to reducing CO₂ emissions. ICT has two thresholds, 65.1331 and 82.4453, in these countries. As ICT surpasses each threshold, the informal sector’s reducing effect on CO₂ emissions increases. In countries with middle incomes, ICT reduces CO₂ emissions, but the informal sector increases them. ICT has two thresholds, 2.2066 and 62.3899, in these countries. As ICT surpasses each threshold, the incremental effect of the informal sector on CO₂ emissions declines. Furthermore, energy consumption and population density have a significant positive impact on CO₂ emissions in both country groups and trade have a significant negative impact on CO₂ emissions and the Kuznets curve is confirmed in high-income countries. Based on these results, prioritize ICT adoption in the informal sector for sustainability and CO₂ reduction in middle-income countries, and foster stakeholder collaborations for comprehensive strategies integrating ICT, the informal sector, and environmental sustainability.