Impact of Informal Manufacturing Sector on Environmental Degradation: Evidence From Emerging Asian Economies

Abstract

The emerging economies of Asia have made remarkable economic progress over the past few decades, primarily driven by rapid structural transformation towards industrialization and manufacturing in particular. The share of informal manufacturing sector value added to GDP and of employment in the informal sector in total employment has increased considerably in these countries. Although this shift from agricultural to industrial/manufacturing may be seen as positive for the goals of poverty reduction, increased standard of living, formation of human capital, etc., its impact on the environment is often not free from contention. The aim of the paper is to examine the impact of informal manufacturing sector growth on environmental degradation in emerging Asian economies. Here, we have used CO₂ emissions as an indicator of environmental degradation. The impact of other exogenous variables, such as population growth, energy consumption, trade openness and foreign direct investment, has also been studied. We have employed the fixed effect model and the random effect model on the data spanning from 2000 to 2022. We have also used the Hausman test to check the suitability of the models. The results of the analysis indicate the presence of a U-shaped relationship between CO₂ emissions and informal manufacturing growth, thus refuting the validity of the Environmental Kuznets Curve hypothesis.

Citation

Babu, S.S. and Basar, S.M.A. (2024), "Impact of Informal Manufacturing Sector on Environmental Degradation: Evidence From Emerging Asian Economies", Pal, M.K. and Das, P. (Ed.) Informal Manufacturing and Environmental Sustainability, Emerald Publishing Limited, Leeds, pp. 207-220. https://doi.org/10.1108/978-1-83549-998-620241015