Corruption, growth, and the environment: a cross-country analysis

TLDR

Corruption can influence the income–pollution relationship both directly by raising pollution at a given income level and indirectly by reducing per capita income, but the net effect is uncertain. The study estimates the direct and indirect effects of corruption on pollution across countries using cross‑sectional data. The authors analyze cross‑sectional pollution indicators to quantify corruption’s direct and indirect impacts. They find that pollution rises monotonically with corruption, with the indirect income effect varying by income level but the direct effect dominating when the indirect effect is negative, implying that reducing corruption can simultaneously boost economic and environmental outcomes, especially in low‑income countries.

Abstract

The relationship between per capita income and a number of pollution indicators has been found to display an inverted U-shaped or downward-sloping pattern. Corruption may affect this relationship in two distinct ways: by raising pollution at given income levels (direct effect) and by reducing per capita income (indirect effect). The total effect is ambiguous a priori. Using cross-section data for several indicators of pollution, the paper estimates the direct and the indirect effect of corruption on pollution. The indirect effect via income is positive or negative depending on the income level. If negative, the indirect effect is dominated by the positive direct effect. Overall, our measures of pollution are monotonically increasing in corruption. Because this relationship is particularly strong at low income levels, developing countries can considerably improve both their economic and environmental performance by reducing corruption.