The Moderating Role of Information and Communication Technology Diffusion in Informal Economy-Pollution Nexus in Kingdom Saudi Arabia

Abstract

This study investigates the moderating role of ICT in the relationship between the informal economy and environmental degradation in Saudi Arabia from 1990 to 2020. Additionally, it identifies the threshold level of ICT necessary to mitigate the impact of the shadow economy and reduce environmental pollution. Using the Autoregressive Distributed Lag (ARDL) approach, the results reveal that the informal economy significantly increases environmental degradation in both the short and long term, while ICT has a negative impact on pollution. This suggests that the informal economy deteriorates environmental quality, whereas ICT helps reduce it. The interaction between the informal economy and ICT shows a negative but statistically insignificant effect on environmental degradation in the long run, indicating that ICT alone is insufficient to achieve a significant reduction in either the informal economy or environmental degradation. Additionally, the study identifies a threshold level of 2.722 for ICT, which is necessary to effectively diminish the impact of the informal economy and reduce environmental degradation. Policymakers should focus on integrating ICT into environmental regulations, strengthening digital systems for monitoring and enforcement. Additionally, regulating the informal economy measures are crucial for effective policy implementation. Promoting digital transformation and public awareness will further support these efforts and help achieve better environmental outcomes.