The impact of informal economy on technological innovation–ecological footprint nexus in OECD countries: new evidence from panel quantile regression

Given the alarming rate of environmental degradation, the contribution of technology development in preserving the ecosystem is crucially important to be analyzed. In addition, since the informal sectors are not included in the official statistics and may be disadvantaged in adopting technological advances, their impact on the environmental quality should be also carefully considered. Thus, this paper examines the direct effect of technological innovation on environmental quality as well as the interaction effect between technological innovation and informal economy. We employ advanced panel quantile regression for 27 OECD countries from 1995 to 2015. The empirical results indicate that the impact of technological innovation on ecological footprint is favorable but heterogeneous across quantiles. The magnitude of impact intensifies as the ecological footprint increases from the lower to middle quantiles of the distribution and then reverts to the average level at the upper quantiles. The shadow economy exerts a negative effect from the middle to upper quantiles of the ecological footprint distribution. Further, higher informality diminishes the favorable effect of technological progress on the environment. The policymakers should strengthen basic conditions for the establishment and adoption of environmental-related technologies as well as tailor environmental policies for the ongoing transition from the informal to the formal sectors.