Propiedades

Empirical investigation of the e¤ect of corruption and pollution is pioneered by Welsch (2004). In his investigation, he classi…es the e¤ects of corruption on pollution into direct e¤ect and indirect e¤ect. Corruption may directly in- crease pollution by decreasing the strictness of environmental regulation (see

Damania et al., 2003; Fredriksson et al., 2004; López and and Mitra, 2000; Pellegrini and Gerlagh, 2006; Zugravu et al., 2008; Leitão, 2010) and/or the e¤ectiveness of the enforced environmental regulation (see Biswas et al., 2012; Lippe, 1999; Callister, 1999; Ivanova, 2011). Moreover, corruption may indi- rectly a¤ect pollution through its e¤ect on economic development which in turn a¤ects pollution. Taking into account the evidence of generally harm- ful impact of corruption on economic development (e.g., Gyimah-Brempong, 2002; Keefer and Knack, 1997; Li et al., 2000; Mauro, 1995; Shleifer and Vishny, 1993; Bardhan, 1997; Gupta et al., 2002) as well as the evidence of the EKC (e.g., Grossman and Krueger, 1995; Selden and Song, 1994; Leitão, 2010; Sha…k, 1994; Cole et al., 1997; Panayotou, 1993), the indirect e¤ect of corruption on pollution cannot be determined straightforwardly. At lower income level before the turning point of the EKC, corruption has an indirect negative e¤ect on pollution; corruption reduces income and reduced income lowers pollution. On the contrary, at higher income level after the turning point of the EKC, corruption reduces income and reduced income increases pollution; corruption has a positive indirect e¤ect on pollution. As a con- sequence, the total e¤ect of corruption on pollution cannot be determined without investigating the interdependencies between pollution, corruption and economic development.

Accounting for these direct and indirect e¤ects and using data available from the Environmental Sustainability Index (ESI) for a panel of countries, Welsch (2004) …nds that the direct e¤ect and the total e¤ect of corruption on pollution is positive for all indicators of ambient air and water pollution he uses. He also …nds that corruption and income per capita are signi…cantly and negatively correlated, further con…rming the evidence of negative e¤ect of corruption on development. However, the relationship between pollution and income per capita is not the same across all indicators of pollution he investigates. NO2, TSP, dissolved oxygen demand and suspended solids have

a negative relationship with income, resulting in a positive indirect e¤ect of corruption on pollution over a large portion of the income scale. SO2 has an

inverse U-shaped relationship with income. As a result, the indirect e¤ect of corruption on pollution is negative at lower income level; it turns positive at higher income level. Also, except for dissolved oxygen demand and TSP, there is a range of income at which corruption has a negative indirect e¤ect on pollution. In such cases, however, the direct e¤ect still dominates the indirect e¤ect. Furthermore, Welsch (2004) …nds that the e¤ect of corruption on pollution is especially strong in low income countries. Thus, he concludes that reducing corruption will lead to lower pollution; this is especially so for the poor countries.

for dealing solely with the state (ambient) indicators in his analysis and in deriving his conclusions. As such, the validity of the …ndings presented by Welsch (2004) is questionable as they rely on highly aggregated indices re‡ected in single values for a country (Morse, 2006). In order to rectify this problem, Morse (2006) examines the Pressure-State-Impact-Response (PSIR) components of the ESI to investigate if the e¤ect of corruption on environmental sustainability is di¤erent for each component for a panel of countries. He …nds that while corruption is negatively related to income per capita, ESI is positively related to income per capita. Morse (2006) also …nds as corruption increases, both environmental sustainability and income per capita decrease; this relationship could be explained in terms of both direct and indirect e¤ects. Moreover, he …nds that corruption is only signi…cantly correlated with the response indicators of the ESI, particularly environmental governance, private sector responsiveness and participation in international collaborative e¤orts. This relationship could be explained in terms of how closely these indicators re‡ect the e¤ect of corruption on decision making. He also suggests that corruption, income and environmental sustainability may be inter-linked in a complex feedback e¤ect. Low income and poor environment may both cause and be caused by corruption. The former can be explained by the wish to move from polluted places to more prosperous places (Morse, 2006). Furthermore, Morse (2006) suggests complementing quantitative studies with qualitative studies on this topic to generate further insights.

Further investigation of the impact of corruption on pollution for a panel of countries is done by Cole (2007). Cole (2007) criticises Welsch (2004) for using only one year data which does not explain unobserved heterogeneity across countries and for not making provision for the potential endogeneity between income and corruption. Cole (2007) therefore aims to rectify these two problems in his study. Based on his study of two pollutants, CO2 and

SO2, Cole (2007) …nds that corruption is signi…cantly and negatively corre-

lated to income per capita; while both pollutants are signi…cantly correlated with income per capita in a cubic way. He also …nds a positive direct e¤ect of corruption on emissions which does not vary with income. However, the indirect e¤ect of corruption on emissions is negative at the median income levels for both pollutants, resulting in a negative total e¤ect.

In contrast with Welsch (2004), Cole (2007) …nds that the indirect e¤ect is larger than the direct e¤ect for the majority of the sample income range. Moreover, this indirect e¤ect increases as income per capita increases; at some point, this indirect e¤ect turns positive as income per capita increases. Thus, although the total e¤ect of corruption on emissions is generally nega- tive, it also increases in income and becomes positive at the upper end income

levels. Cole (2007) argues that Welsch (2004) yields di¤erent results from his because Welsch (2004) does not allow for potential endogeneity between in- come and corruption; the problem which is recti…ed by Cole (2007) in his study. Not surprisingly, Cole (2007) derives conclusions which contradict those proposed by Welsch (2004). Cole (2007) suggests that the bene…t of reducing corruption on environment is greater for the high income countries where both direct and indirect e¤ect are positive resulting in positive total e¤ect of corruption on pollution. In low income countries where the nega- tive indirect e¤ect dominates the positive direct e¤ect, reducing corruption results in higher prosperity but also higher pollution. As higher economic development appears to be a necessity for low income countries, reducing corruption and improving environmental protection should be done side by side for those countries (Cole, 2007).

Next, Leitão (2010) provides further evidence of the impact of corruption on pollution by focusing on the implication of corruption on income-pollution path across countries. His study aims to test empirically if higher corruption results in higher income per capita at the turning point of the EKC, as suggested by López and and Mitra (2000). Leitão (2010) also accounts for the indirect e¤ect of corruption on pollution by following Cole (2007) closely. Based on his study, Leitão (2010) con…rms that the relationship between pollution and income is inverse U-shaped whether or not corruption exists. Furthermore, he …nds evidence that higher corruption increases the income per capita threshold above which pollution declines. Hence, corruption may cause income-pollution paths to di¤er across countries (Leitão, 2010). Leitão (2010) therefore proposes that lowering corruption appears to enhance the strictness of environmental regulation, reduce the income per capita at the turning point of the EKC and yield considerable economic bene…ts.

A more recent evidence of the impact of corruption on pollution is pro- vided by Ivanova (2011). She …nds that countries with e¤ective regulatory frameworks are likely to report relatively high emissions of sulphur but have lower actual pollution levels compared to others. Based on her results, she highlights the importance of improving transparency in data reporting partic- ularly in countries with poor regulatory regimes in order to reduce pollution in those countries. As there is an interaction e¤ect between reducing corrup- tion in connection with reducing pollution and the strengthening of the legal system, they have to be done simultaneously (Ivanova, 2011).

On a related note, there exists some evidence showing how corruption a¤ects the environment through its interaction with other variables. For example, Damania et al. (2003) …nd that while trade liberalisation has a positive e¤ect on the stringency of environmental regulation, this e¤ect de- pends on the degree of corruption. Speci…cally, the e¤ect is larger when the

government is more corrupt and it becomes negative for the most honest governments. Moreover, while corruption has a negative e¤ect on the strin- gency of environmental regulation, this e¤ect is larger when the trade policies are more distorted (Damania et al., 2003). Cole et al. (2006) also provide evidence showing that the e¤ect of Foreign Direct Investment (FDI) on en- vironmental policy depends on the degree of corruption in the government. When corruption is low, FDI increases the stringency of environmental pol- icy; when corruption is high, FDI reduces the stringency of environmental policy.

Next, Fredriksson and Svensson (2003) discover that the e¤ect of po- litical stability on environmental regulations is conditional on the degree of corruption. When corruption is high, political instability increases the stringency of environmental regulations; when corruption is low, political in- stability decreases the stringency of environmental regulations. Fredriksson and Svensson (2003) also …nd that the e¤ect of corruption on environmental regulations depends on the degree of political instability. Although corrup- tion lowers the strictness of environmental regulations, this e¤ect vanishes as political instability increases. A more recent evidence is provided by Biswas et al. (2012) who …nd that while shadow economy has a positive e¤ect on pollution, this e¤ect is reinforced by corruption.