Financial risk, sustainable development, natural resources and green finance: unveiling the shadow economy in the BRICST countries

Faisal Faisal (), Aliya Zhakanova Isiksal (), Ala Fathi Assi (), Adnan Ali () and Hamid Ghazi H Sulimany ()
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Faisal Faisal: Sohar University
Aliya Zhakanova Isiksal: Near East University
Ala Fathi Assi: Near East University
Adnan Ali: Sohar University
Hamid Ghazi H Sulimany: Taif University

Mineral Economics, 2025, vol. 38, issue 2, No 10, 397-412

Abstract: Abstract Natural resources and green finance play a vital role in the sustainability of any economy. However, emerging economies are confronted with the problems of the informal economy and financial risk, which creates uncertainty. Therefore, this study investigates the question regarding whether green finance can mitigate the informal or shadow economy. Simultaneously, the interaction role of green finance and financial risk is analysed to predict whether green finance moderates the financial risk in influencing the shadow economy. Therefore, the existing study aims to address the research question by investigating the nexus between green finance, financial risk, natural resource rents, sustainable development, and the informal economy in the BRICST countries during the 2004–2018 period. This study employs the Lagrange multiplier unit root test in addition to Pedroni and Kao cointegration tests to predict the integration order and long-run nexus. Moreover, the FMOLS, DOLS, and Konya bootstrap causality techniques are applied. The long-run nexus has been confirmed with a unique order of integration of the series. Moreover, the FMOLS results suggest that natural resources, green finance, sustainable development and GDP decrease the informal economy, while financial risk causes it to upsurge. This is because green finance investment leverages the economies by using legal channels that restrict the use of the informal economy. Moreover, the moderating effect of green finance through the channel of financial risk positively affects the informal economy. Finally, a bidirectional causality has been found between green finance and the informal economy for India and South Africa. It is suggested that the BRICST economies should focus on increasing investment in the green finance sector by stabilizing the financial risk to decrease the size of the informal economy. The BRICST economies must leverage investments in the natural resources sector, which can also reduce the informal economy.

Keywords: BRICST; Shadow economy; Green finance; Sustainable development; Natural resources (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s13563-025-00493-y

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