The Shadow economy (SE) poses significant ecological challenges by operating informally, often bypassing environmental standards. Conversely, institutional quality (IQ) enforces compliance with environmental regulations. Similarly, adopting renewable energy sources (RES) provides sustainable alternatives to fossil fuels. Therefore, the study aims to investigate how SE creates unsustainable development by increasing ecological footprint (EFP) and how better IQ and adoption in RES reduce EFP towards sustainability. The Method of Moments Quantile Regression (MMQR) is applied to data for the G-7 countries, covering the period from 1996 to 2020. Findings reveal that SE plays a dominant role in increasing EFP, while improvements in IQ and enhancement of RES lead to a notable reduction in EFP. The study recommends policies to curb informal economic activities and enhance institutional quality alongside more significant investments in green energy to foster sustainable development. The study contributes to the existing literature by offering an extensive analysis that emphasizes the importance of IQ and RES in reducing EFP, utilizing a novel methodological approach and the latest comprehensive data.
Shabir et al. (2026) studied this question.