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Assessing the Role of Institutions in Limiting the Environmental Externalities of Economic Growth

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  • Stephane Dées

    (Banque de France and Univ. Bordeaux)

Abstract

Emissions of pollutants tend to be procyclical as they generally increase with economic growth. However, as government policy has a role to play in the mitigation of the environmental consequences of economic activity, the quality of institutions may influence the procyclicality of pollution and reduce the environmental cost of economic growth. Based on the assumption that changes in emissions are stronger at earlier stages of development, we develop a non-linear framework and confirm first the presence of income-related threshold effects in the relationship between pollution (CO $$_2$$ 2 and greenhouse gas emissions) and growth, for a panel of 142 countries over a period spanning from 1960 to 2017. We also find that institutional quality influences this relationship, as the quality of institutions lowers the value of the threshold and the degree of procyclicality of emissions. These results bring therefore evidence that higher institutional quality can attenuate the environmental externalities of economic growth.

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  • Stephane Dées, 2020. "Assessing the Role of Institutions in Limiting the Environmental Externalities of Economic Growth," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(2), pages 429-445, July.
    • Handle: RePEc:kap:enreec:v:76:y:2020:i:2:d:10.1007_s10640-020-00432-1
    DOI: 10.1007/s10640-020-00432-1
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    More about this item

    Keywords

    CO $$_2$$ 2 emissions; GHG emissions; Economic growth; Institutions;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • 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

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