How does a democratic government with limited intervention affect environmental quality? Fresh evidence with international panel data

Sheraz Et Al

doi:10.21833/ijaas.2021.04.015

Abstract

This paper examines the effect of democratic countries which encourage economic freedom on the environment, measured by Carbon Dioxide (〖CO〗_2) emission. For the empirical analysis, an annual panel data sample consisting of 179 countries from 1990 to 2018 is collected. Applying the Ordinary Least Squares and Two-Step Generalized Method of Moments estimation techniques, we find that the environmental quality is enhanced with a higher degree of democracy and economic freedom. The results firmly hold for high and middle-income countries when the sample is decomposed across income levels.

Highlights

There are potential determinants due to which democracy is found to improve environmental standards by decreasing CO2 emissions
Access to human rights such as population growth rate (Heilbroner, 1991), the influence of capitalist class on democratic government (Dryzek, 1987), the pressure of higher production to attract votes (Desai, 1998) and pressure to enhance foreign direct investment (Romuald, 2011) are enlisted as potential causes why democracies may lead to degrading environment through compromising on higher levels of CO2 emission
As we know that the effect of democracy on the environment as well as the effect of economic freedom on the environment is separately analyzed in the previous literature

Summary

Introduction

There are potential determinants due to which democracy is found to improve environmental standards by decreasing CO2 emissions. As we know that the effect of democracy on the environment as well as the effect of economic freedom on the environment is separately analyzed in the previous literature. Keeping this in view, we analyze how democratic countries affect the environment while encouraging economic freedom. The main contribution of this paper is to apply the interaction effect between democracy levels and economic freedom and analyze how this interaction term relates to the environment. The findings suggest that the democratic countries which promote economic freedom improve environmental quality (reduce CO2 emission level).

Democracy and environment

Economic freedom and environment

Empirical analysis

Conclusion