Abstract
Lower-income countries absorb a substantial part of other countries’ consumption-related environmental footprints, with international trade and foreign direct investment (FDI) serving as the conduit for this environmental “insourcing.” We examine whether democratic institutions could help mitigate the risk of lower-income countries becoming pollution havens in this context. Using data on CO2 emissions for all non-OECD countries in 1990–2019, we find that democratic institutions can indeed mitigate the otherwise pollution-increasing effect of trade and FDI. Substantively, this mitigation effect is in the order of 0.14 metric tons of CO2 per capita and, thus, quite substantial. We also observe similar effects for more broadly defined environmental footprint measures. Overall, the evidence we present is consistent with the expectation that democracy helps in protecting lower-income countries against disproportionately accumulating polluting economic activity in an open global economy.
Published Version
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