The political economy of environment, political corruption, and economic growth

This paper presents an examination of how political corruption affects economic growth and the dynamic behavior related to environmental issues. Attempts by the private sector to intervene in government environmental policy might affect environmental policy, the dynamic behavior of the economy, and its long-term sustainability. To elucidate these effects, this paper presents a simple overlapping generations model with environmental externalities and politically motivated governments. If abatement technology is high and the government enforces optimal environmental policies, then the per-capita growth rate becomes positive and environmental quality improves over time. This study considers the case in which interest groups make a political donation or offer a bribe to prevent a government from introducing environmental policies. If the marginal benefit of such donations is sufficiently high, then the government accepts political contributions and delays the introduction of environmental policies. In such cases, even in economies with the capacity to achieve sustainable growth, the dynamic economic behavior might be destabilized, cycles might occur, or long-term economic growth rates might become negative. Numerous previous studies have demonstrated that corruption reduces the growth rate and degrades environmental quality. However, the dynamic behavior of the economy has not been adequately explored. This paper, therefore, examines not only the steady-state properties of the economy but also its dynamic behavior. A key contribution of this study is to show that political contributions and bribery may not only lower the long-run growth rate and worsen environmental quality, but also destabilize the dynamic trajectories of output and the environment — an aspect that has been largely overlooked in the existing literature. This conclusion suggests the necessity of establishing institutions and laws capable of preventing political corruption for an economy not to fall into a trap and achieve sustainable development. Moreover, investment and innovation must occur to increase productivity. The study is relevant to Goal 8 of the UN Sustainable Development Goals (Target 8.4), which provides a theoretical basis for identifying the conditions necessary to achieve economic growth without environmental degradation.