Shadow Economy and the Ecological Footprint Nexus: The Implication of Foreign Direct Investment in ASEAN Countries

Abstract

This study examines the influence of economic growth, energy consumption, a shadow economy, and foreign direct investment (FDI) on the ecological footprint in ASEAN countries. The analysis covers a panel of nine member states—Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, the Philippines, Singapore, Thailand, and Vietnam—over the period from 1993 to 2017 due to data availability. To ensure robustness, various panel econometric techniques were employed, including cross-sectional dependence, panel unit root, and cointegration tests, as well as estimation methods such as Driscoll–Kraay standard errors, feasible generalized least squares (FGLS), and panel-corrected standard errors (PCSE). The results do not support an inverted U-shaped Environmental Kuznets Curve (EKC) between economic growth and ecological footprint in the ASEAN countries. Moreover, the findings consistently show that energy consumption, the size of the shadow economy, and FDI exert a statistically significant and positive impact on the ecological footprint towards the Driscoll–Kraay standard errors, FGLSs, and PCSE estimators. For policy recommendations, a country’s pursuit of economic growth should be aligned with a higher degree of environmental sustainability by strategically reducing energy consumption, curbing the shadow economy, and managing foreign direct investment responsibly.