Abstract
We examine the relationship between income and water pollutants using country-level global water quality data over the period 1980 to 2012. We include civil liberties and political rights in addition to income as explanatory variables. We use recent advances in econometric techniques to address the inclusion of continuous and discrete variables in nonparametric instrumental variable regression models. Results indicate an inverted U-shape relationship between income and pollution for one pollutant (lead) and a cubic shape for three pollutants (nickel, mercury and arsenic). In general, we find that improved civil liberties and political rights are correlated with better water quality. By estimating a nonparametric relationship between political variables and pollution and by accounting for the categorical nature of the political variables, we are able to detect a nonlinear relationship between political variables and pollution, which for some pollutants is an inverted U-shaped curve.
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