IDEAS home Printed from https://ideas.repec.org/a/eee/ecolec/v75y2012icp114-125.html
   My bibliography  Save this article

Pollution, shadow economy and corruption: Theory and evidence

Author

Listed:
  • Biswas, Amit K.
  • Farzanegan, Mohammad Reza
  • Thum, Marcel

Abstract

We study how the shadow economy affects pollution and how this effect depends on corruption levels in public administration. Production in the shadow economy allows firms to avoid environmental regulation policies; a large informal sector may be accompanied by higher pollution levels. Our theoretical model predicts that controlling the levels of corruption can limit the effect of the shadow economy on pollution. We use panel data covering the period from 1999 to 2005 in more than 100 countries to test this theoretical prediction. Our estimates confirm that the relationship between the shadow economy and the levels of pollution are dependent on the levels of corruption. Our results hold when we control for the effects of other determinants of pollution, time varying common shocks, country-fixed effects and various additional covariates.

Suggested Citation

  • Biswas, Amit K. & Farzanegan, Mohammad Reza & Thum, Marcel, 2012. "Pollution, shadow economy and corruption: Theory and evidence," Ecological Economics, Elsevier, vol. 75(C), pages 114-125.
  • Handle: RePEc:eee:ecolec:v:75:y:2012:i:c:p:114-125
    DOI: 10.1016/j.ecolecon.2012.01.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0921800912000092
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.ecolecon.2012.01.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bhattacharyya, Sambit & Hodler, Roland, 2010. "Natural resources, democracy and corruption," European Economic Review, Elsevier, vol. 54(4), pages 608-621, May.
    2. Jay Pil Choi & Marcel Thum, 2004. "The Economics of Repeated Extortion," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 203-223, Summer.
    3. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1339-1382.
    4. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September.
    5. Francisco L. Rivera-Batiz & Luis A. Rivera-Batiz, 2018. "Democracy, Governance, and Economic Growth: Theory and Evidence," World Scientific Book Chapters, in: Francisco L Rivera-Batiz & Luis A Rivera-Batiz (ed.), International Trade, Capital Flows and Economic Development, chapter 8, pages 215-248, World Scientific Publishing Co. Pte. Ltd..
    6. Dinda, Soumyananda & Coondoo, Dipankor & Pal, Manoranjan, 2000. "Air quality and economic growth: an empirical study," Ecological Economics, Elsevier, vol. 34(3), pages 409-423, September.
    7. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    8. Gene M. Grossman & Alan B. Krueger, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 353-377.
    9. Scruggs, Lyle A., 1998. "Political and economic inequality and the environment," Ecological Economics, Elsevier, vol. 26(3), pages 259-275, September.
    10. Helmut Herwartz, 2010. "A note on model selection in (time series) regression models - general-to-specific or specific-to-general?," Applied Economics Letters, Taylor & Francis Journals, vol. 17(12), pages 1157-1160.
    11. Soham Baksi & Pinaki Bose, 2010. "Environmental Regulation in the Presence of an Informal Sector," Departmental Working Papers 2010-03, The University of Winnipeg, Department of Economics.
    12. Dondeyne, S. & Ndunguru, E. & Rafael, P. & Bannerman, J., 2009. "Artisanal mining in central Mozambique: Policy and environmental issues of concern," Resources Policy, Elsevier, vol. 34(1-2), pages 45-50.
    13. Bimonte, Salvatore, 2002. "Information access, income distribution, and the Environmental Kuznets Curve," Ecological Economics, Elsevier, vol. 41(1), pages 145-156, April.
    14. Chang, Chingfu & Lee, Alice C. & Lee, Cheng F., 2009. "Determinants of capital structure choice: A structural equation modeling approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 197-213, May.
    15. Mo, Pak Hung, 2001. "Corruption and Economic Growth," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 66-79, March.
    16. Meredith L. Fowlie, 2009. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 72-112, August.
    17. Dougherty, Christopher, 2011. "Introduction to Econometrics," OUP Catalogue, Oxford University Press, edition 4, number 9780199567089.
    18. Panayotou, Theodore, 1997. "Demystifying the environmental Kuznets curve: turning a black box into a policy tool," Environment and Development Economics, Cambridge University Press, vol. 2(4), pages 465-484, November.
    19. Blackman, Allen & Bannister, Geoffrey J., 1998. "Community Pressure and Clean Technology in the Informal Sector: An Econometric Analysis of the Adoption of Propane by Traditional Mexican Brickmakers," Journal of Environmental Economics and Management, Elsevier, vol. 35(1), pages 1-21, January.
    20. Friedrich Schneider & Andreas Buehn & Claudio Montenegro, 2010. "New Estimates for the Shadow Economies all over the World," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 443-461.
    21. Friedl, Birgit & Getzner, Michael, 2003. "Determinants of CO2 emissions in a small open economy," Ecological Economics, Elsevier, vol. 45(1), pages 133-148, April.
    22. Andreas Buehn & Mohammad Reza Farzanegan, 2012. "Smuggling around the world: evidence from a structural equation model," Applied Economics, Taylor & Francis Journals, vol. 44(23), pages 3047-3064, August.
    23. Fredriksson, Per G. & Svensson, Jakob, 2003. "Political instability, corruption and policy formation: the case of environmental policy," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1383-1405, August.
    24. Torras, Mariano & Boyce, James K., 1998. "Income, inequality, and pollution: a reassessment of the environmental Kuznets Curve," Ecological Economics, Elsevier, vol. 25(2), pages 147-160, May.
    25. Friedrich Schneider & Andreas Buehn & Claudio E. Montenegro, 2011. "Shadow Economies All Over the World: New Estimates for 162 Countries from 1999 to 2007," Chapters, in: Friedrich Schneider (ed.), Handbook on the Shadow Economy, chapter 1, Edward Elgar Publishing.
    26. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
    27. Biller, Dan*DEC, 1994. "Informal gold mining and mercury pollution in Brazil," Policy Research Working Paper Series 1304, The World Bank.
    28. Farzanegan, Mohammad Reza, 2009. "Illegal trade in the Iranian economy: Evidence from a structural model," European Journal of Political Economy, Elsevier, vol. 25(4), pages 489-507, December.
    29. Stern, David I., 2004. "The Rise and Fall of the Environmental Kuznets Curve," World Development, Elsevier, vol. 32(8), pages 1419-1439, August.
    30. Cole, M.A. & Rayner, A.J. & Bates, J.M., 1997. "The environmental Kuznets curve: an empirical analysis," Environment and Development Economics, Cambridge University Press, vol. 2(4), pages 401-416, November.
    31. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo.
    32. Selden Thomas M. & Song Daqing, 1994. "Environmental Quality and Development: Is There a Kuznets Curve for Air Pollution Emissions?," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 147-162, September.
    33. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross‐Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    34. Welsch, Heinz, 2004. "Corruption, growth, and the environment: a cross-country analysis," Environment and Development Economics, Cambridge University Press, vol. 9(5), pages 663-693, October.
    35. Cole, Matthew A., 2007. "Corruption, income and the environment: An empirical analysis," Ecological Economics, Elsevier, vol. 62(3-4), pages 637-647, May.
    36. Blackman, Allen, 2000. "Informal Sector Pollution Control: What Policy Options Do We Have?," World Development, Elsevier, vol. 28(12), pages 2067-2082, December.
    37. Knack, Stephen & Keefer, Philip, 1995. "Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Indicators," MPRA Paper 23118, University Library of Munich, Germany.
    38. Farzin, Y. Hossein & Bond, Craig A., 2006. "Democracy and environmental quality," Journal of Development Economics, Elsevier, vol. 81(1), pages 213-235, October.
    39. Feige, Edgar L, 1994. "The Underground Economy and the Currency Enigma," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 119-136.
    40. World Bank, 2011. "World Development Indicators 2011," World Bank Publications - Books, The World Bank Group, number 2315, November.
    41. Cole, Matthew A., 2004. "Trade, the pollution haven hypothesis and the environmental Kuznets curve: examining the linkages," Ecological Economics, Elsevier, vol. 48(1), pages 71-81, January.
    42. Jay Pil Choi & Marcel Thum, 2005. "Corruption And The Shadow Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 817-836, August.
    43. Lambsdorff,Johann Graf, 2007. "The Institutional Economics of Corruption and Reform," Cambridge Books, Cambridge University Press, number 9780521872751, May.
    44. Francisco L. Rivera-Batiz & Luis A. Rivera-Batiz, 2018. "Democracy, Governance, and Economic Growth: Theory and Evidence," World Scientific Book Chapters, in: Francisco L Rivera-Batiz & Luis A Rivera-Batiz (ed.),International Trade, Capital Flows and Economic Development, chapter 8, pages 215-248, World Scientific Publishing Co. Pte. Ltd..
    45. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2006. "Pollution and Informal Sector: A Theoretical Analysis," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 363-378.
    46. Lopez, Ramon & Mitra, Siddhartha, 2000. "Corruption, Pollution, and the Kuznets Environment Curve," Journal of Environmental Economics and Management, Elsevier, vol. 40(2), pages 137-150, September.
    47. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Buehn, Andreas & Farzanegan, Mohammad Reza, 2013. "Hold your breath: A new index of air pollution," Energy Economics, Elsevier, vol. 37(C), pages 104-113.
    2. Bo Sui & Chun-Ping Chang & Yin Chu, 2021. "Political Stability: an Impetus for Spatial Environmental Spillovers," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 79(2), pages 387-415, June.
    3. Maurizio Lisciandra & Carlo Migliardo, 2017. "An Empirical Study of the Impact of Corruption on Environmental Performance: Evidence from Panel Data," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(2), pages 297-318, October.
    4. Arminen, Heli & Menegaki, Angeliki N., 2019. "Corruption, climate and the energy-environment-growth nexus," Energy Economics, Elsevier, vol. 80(C), pages 621-634.
    5. A. Bühn & M.R. Farzanega, 2011. "Hold Your Breath: A New Index of Air Quality," Working Papers 11-24, Utrecht School of Economics.
    6. Leitão, Alexandra, 2010. "Corruption and the environmental Kuznets Curve: Empirical evidence for sulfur," Ecological Economics, Elsevier, vol. 69(11), pages 2191-2201, September.
    7. Lv, Zhike & Gao, Zhenya, 2021. "The effect of corruption on environmental performance: Does spatial dependence play a role?," Economic Systems, Elsevier, vol. 45(2).
    8. Wen, Jun & Hao, Yu & Feng, Gen-Fu & Chang, Chun-Ping, 2016. "Does government ideology influence environmental performance? Evidence based on a new dataset," Economic Systems, Elsevier, vol. 40(2), pages 232-246.
    9. Mohammad Reza Farzanegan & Gunther Markwardt, 2012. "Pollution, Economic Development and Democracy: Evidence from the MENA countries," MAGKS Papers on Economics 201227, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    10. Dinda, Soumyananda, 2004. "Environmental Kuznets Curve Hypothesis: A Survey," Ecological Economics, Elsevier, vol. 49(4), pages 431-455, August.
    11. Kaika, Dimitra & Zervas, Efthimios, 2013. "The Environmental Kuznets Curve (EKC) theory—Part A: Concept, causes and the CO2 emissions case," Energy Policy, Elsevier, vol. 62(C), pages 1392-1402.
    12. Mohammad Reza Farzanegan & Tim Mennel, 2012. "Fiscal decentralization and Pollution: Institutions Matter," MAGKS Papers on Economics 201222, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    13. Jeong Hwan Bae & Dmitriy D. Li & Meenakshi Rishi, 2017. "Determinants of CO emission for post-Soviet Union independent countries," Climate Policy, Taylor & Francis Journals, vol. 17(5), pages 591-615, July.
    14. Le Hoang Phong & Dang Thi Bach Van & Ho Hoang Gia Bao, 2018. "The Role of Globalization on CO2 Emission in Vietnam Incorporating Industrialization, Urbanization, GDP per Capita and Energy Use," International Journal of Energy Economics and Policy, Econjournals, vol. 8(6), pages 275-283.
    15. Shi Wang & Yizhou Yuan & Hua Wang, 2019. "Corruption, Hidden Economy and Environmental Pollution: A Spatial Econometric Analysis Based on China’s Provincial Panel Data," IJERPH, MDPI, vol. 16(16), pages 1-23, August.
    16. Farzanegan, Mohammad Reza & Markwardt, Gunther, 2018. "Development and pollution in the Middle East and North Africa: Democracy matters," Journal of Policy Modeling, Elsevier, vol. 40(2), pages 350-374.
    17. Halkos, George E. & Tzeremes, Nickolaos G., 2013. "Carbon dioxide emissions and governance: A nonparametric analysis for the G-20," Energy Economics, Elsevier, vol. 40(C), pages 110-118.
    18. Law, Teik Hua & Noland, Robert B. & Evans, Andrew W., 2011. "The sources of the Kuznets relationship between road fatalities and economic growth," Journal of Transport Geography, Elsevier, vol. 19(2), pages 355-365.
    19. Mohammad Reza Farzanegan & Stefan Witthuhn, 2014. "Demographic Transition and Political Stability: Does Corruption Matter?," CESifo Working Paper Series 5133, CESifo.
    20. Jie He, 2007. "Is the Environmental Kuznets Curve hypothesis valid for developing countries? A survey," Cahiers de recherche 07-03, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke.

    More about this item

    Keywords

    Environmental pollution; Shadow economy; Corruption; Panel data;
    All these keywords.

    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:75:y:2012:i:c:p:114-125. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/ecolecon .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolecon .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.