Corruption, Development and the Environment

The thesis contributes to the understanding of the influence of corruption on paths of sustainable development. At different stages, the study shows how corruption hinders economic growth and diminishes the stringency of environmental protection – two fundamental components of sustainable development. Furthermore, the study includes the related issue of the determinants of corruption levels. Chapter 2 produces a cross-country analysis of the determinants of corruption perception. Thanks to improved data availability and the use of comprehensive econometric modelling some central findings of previous econometric studies are questioned. The disheartening findings that historical patterns decisively determine present day corruption levels are mitigated. Specifically, links to a British past (because of common law adoption, or because of a past as a colonised country), and the degree of decentralization are questioned. Ethnolinguistic fractionalization’s negative effect on corruption (which political economy links with more divided societies) becomes insignificant once income levels are controlled for. Cultural theories of the determinants of corruption are confirmed (the presence of protestants is associated with lower levels of perceived corruption). Higher income levels are correlated to lower corruption and the inclusion of income levels lowers size and statistical significance of the coefficients of the other explanatory variables. As corruption is also found to be one of the determinants of income growth rates (see chapter 3) caution is needed in interpreting the results. Thus, in the medium to long run it is corruption that affects income levels (via its cumulated effect on growth rates). Once the effect of corruption on income levels is discounted, the inclusion of income then serves as a test for the effect of the other independent variables. Nevertheless, the coefficient on the income variable is not reliable because of causality issues. The analysis also shows that other country features, which are policy amenable in the medium run, are associated with lower levels of corruption. It finds that a medium-long exposure (30 years) to uninterrupted moderate-to-high levels of democracy is associated with lower corruption. The frequency of changes in veto powers (a measure of the time horizon of political actors) is positively associated with corruption. Finally, some tentative evidence is provided on the negative correlation of newspaper readership, and higher wages in the public sector (when compared to average GDP) with respect to corruption. Chapter 3 presents an econometric analysis of the effect of corruption on economic growth. Direct and indirect transmission channels are considered. The indirect channels included in the analysis are: investment, schooling, trade openness, and political violence. The results highlight that the influence of corruption over GDP growth rates goes mostly through the transmission channels and that investment, education, and trade openness appear to bear most of the effect. Overall, the results suggest a strong negative influence of corruption on growth. Chapter 4 provides an empirical test of theories of the determinants of environmental policy stringency. The analysis finds that the corruption variable is a fundamental determinant of the level of environmental protection. The inclusion of an index of perceived corruption and a measure of procedural democracy finds that the effect of corruption dominates. As it was shown in chapter 2, a medium to long exposure to democracy is associated with lower corruption, thus in the longer term democracy could still (positively) affect environmental protection through its mitigating effect on corruption. Furthermore, because of the high degree of correlation between democracy and corruption, multicollinearity could have inflated the standard error of democracy’s coefficient (i.e. it can have decreased the statistical significance of the coefficient). Our findings confirm the direct and large effect of corruption on the stringency of environmental policies and that they are robust to the inclusion of a proxy for democracy in the analysis. A similar direct effect of procedural democracy is questioned. Chapter 5 applies the analysis of environmental policy determinants to the case of the accession process to the EU. New EU members and candidates are characterised by markedly lower levels of environmental protection and – among the harmonization initiatives they have undergone in the accession process – they rapidly adopted (at least formally) measures to protect the environment. The study analyses the effects of the incidence of corruption in these countries and argues that high corruption levels in the new EU members – when compared to the old ones – provides a rationale for the harmonization process of environmental regulations.