The moderating effect of economic complexity in the shadow economy-renewable energy transition nexus: evidence from African economies

The relationship between shadow economy and renewable energy remains debatable in the literature. However, no known study has examined the moderate effects of economic complexity in the shadow economy-renewable energy transition nexus. In this study, we attempt to fill this gap by investigating the moderating role of economic complexity in the shadow economy and renewable energy transition linkages for African economies. A balanced data set of twenty-six African countries during 1995–2017 is used. The study scrutinizes the properties of the variables and finds evidence of spatial dependence and slope heterogeneity in the panel structure. The long-run results were obtained using the augmented mean group and common correlated effect mean group, while the quantile distribution of the estimate was obtained using the method of moment quantile regression. Dumitrescu and Hurlin’s panel causality tests examined the direction of causation. Findings reveal that shadow economy reduces renewable energy transition. Economic complexity has a significant positive influence on renewable energy, thus strengthening the use of renewable energy. On the moderate role, the results show that economic complexity moderates the adverse effect of the shadow economy on the renewable energy transition at the lower and mid-quantile. The study recommends improving the economy’s productive structure by investing and supporting the productive sector. This can be done by subsiding, tax exemption, or funding some high technology industries, leading to diversification and specialization of labor and improving energy efficiency.