Regulatory impact of informality on gasoline consumption efficiency in Africa: A proposed two-part complementary hypothesis test

Abstract

This study provides new evidence for the regulatory impact of informality on gasoline efficiency in Africa. I propose a Two-Part Complementary Hypothesis (hereafter referred to as the TPCH test), advocating a differential approach to promoting gasoline efficiency: (1) an inverted U-shaped relationship between informality and gasoline inefficiency, and (2) a U-shaped relationship between government regulation and informality, with a significant level effect. The findings indicate an inverted U-shaped effect of informality on gasoline efficiency and a level-negative effect of regulation on informality. These results suggest a differential strategy for enhancing gasoline efficiency. Government regulation is more effective in economies at the pre-saturation stage (characterized by normal growth levels of informality) but proves ineffective in economies at the post-saturation stage (characterized by abnormal growth levels of informality), where energy-saving behaviors may be self-motivated. This is corroborated by the inefficiency equation, where indicators of good governance, such as the rule of law, control of corruption, and regulatory quality, are statistically significant in advancing energy efficiency goals. Gasoline efficiency performance varies across countries, with the higher performers also being the continent's most economically advanced. However, these estimates risk downward bias if outliers or unobserved/observed heterogeneity are not considered. • A two-part hypothesis for testing the regulation-induced effect of informality • Regulatory quality productive for gasoline efficiency during the pre-saturation state of the informal economy • Regulatory quality counterproductive for gasoline efficiency during the post-saturation state of the informal economy • Corruption control, rule of law, and quality regulation promote gasoline use efficiency • Heterogeneity bias and outliers potentially confound efficiency estimates