A System- GMM Model for Evaluating Natural Resource Revenues and Shadow Economies in African Context: Evidence from Sub-Saharan African Countries

This present study explored the linkage of natural resources revenues and the shadow economies with consideration for sub-Saharan African contexts. It is an inquiry in the degree to which rents from oil, forest, coal, mineral and gas and total natural resources can impact shadow economy in the SSA countries. The study’s data was collated from the selected sub-Saharan African countries and covered the period 2000-2022. The study adopts the system GMM techniques as the major estimation technique. Summarizing the econometric results, findings reveal direct and significant impact of forest rent, coal rent, mineral rent and total natural resources on the shadow economy. Also, the empirical results reveal an indirect but indistinguishable impact of oil rent on the informal economy. The evidence further found negative and insignificant impact of gas rent on the shadow economy. The study suggested that the government should establish a robust institutional framework that can prevent the misappropriation of natural resource revenues, decrease the extent of the shadow economy, and improve the depth of financial institutions, all of which can contribute to the African continent's economic progress. Furthermore, the findings from this study have shown that there is a need for the government to ensure that measures that increase economic competition, loosen restrictions, lessen the incentives for corruption and encourage businesses to transition from the shadow economy to the legal one. Instead of focusing on expanding the number of rules, the government should prioritize the rule of law and the rigorous enforcement of the bare minimum required by law.