THE RELATIONSHIP BETWEEN GOOD GOVERNANCE AND CARBON DIOXIDE EMISSIONS: EVIDENCE FROM DEVELOPING ECONOMIES

Abstract

This paper examines the relationship between five dimensions of good governance (political stability, government effectiveness, regulatory quality, rule of law, and corruption) and carbon dioxide (CO2) emissions in a cross-section of developing countries. Two measures of CO2 emissions are utilized: CO2 emissions in kilograms per 2000 US dollars of gross domestic product (GDP) and in metric tons per capita. Robust results are obtained for a number of variables when the dependent variable is CO2 emissions in metric tons per capita. The results provide confirmation that political stability, the rule of law, and control of corruption are negatively and statistically significantly correlated with CO2 emissions per capita. The results also provide evidence in support of the Environmental Kuznets Curve (EKC) and that trade openness and the size of industrial sector as other strong correlates of CO2 emissions.Keywords: Carbon Dioxide, Emissions, Governance, Developing Countries, RegulationJEL classification: O13, O50, Q56, Q59(ProQuest: ... denotes formula omitted.)1. INTRODUCTIONChemical by-products such as nitrogen oxides, carbon monoxide, suspended aerosol particulates and sulfur dioxides arising from market activities are some of the pollutants that are found to have significant detrimental effects on the natural environment (Roberts, Grimes and Manale, 2003; Friedl and Getzner, 2003). In its Human Development Report, the United Nations Development Program (UNDP, 2007, p. 3) notes that the stocks of greenhouse gases concentrations have reached 380 parts per million of CO2 equivalent, exceeding the natural range of the last 650,000 years while the threshold for dangerous climate change as a result of greenhouse gases is a change in temperature by 2 degrees centigrade, in the course of the 21st century. Available statistics also reveal that in 2007, CO2 emissions (metric tons per capita) by high-income countries averaged 12.5; and in the middle-income countries it was 3.3; while in the low-income countries it was 0.28 (World Bank, 2010).Stiglitz (2002, p. 223) has argued that global warming caused by the industrial countries also affects those living in the developing economies as they are also the hosts to the world's major population concentrations. The changes in the global temperatures and the level of emissions as noted above can have detrimental effects on population well being as the degradation of the environment results in prolonged periods of drought, damaging storms and floods. The effects of CO2 emissions by the developing world are equally important as the industrialized countries as an expansion in the economic activities in several developing countries is likely to raise emission levels now and in future. In their study of the distributional impact of climate change in the rich and poor countries, Mendelsohn, Dinar and Williams (2006) and Tol (2005) predict that poor countries will suffer the bulk of damages from climate change. Several developing countries particularly in Asia and Latin America sub-continents are now witnessing a strong expansion in their economic activities. Growth prospects for large developing countries like China, India and Brazil continues to be promising and so as the demand for fossils fuels will continue to rise which in turn will contribute to CO2 gases.To a large extent, industrial firms are responsible for their negative externalities: environmental degradation through their production processes that generate by products that are harmful to the physical environment. In their study, Dasgupta, Shyamsundar and Maler (2004) have argued that the study of environmental change and of institutions cannot be divorced from policies and economic reforms in poor countries. This is where the issue of the relationship between the quality of governance and maintaining a sustainable environment becomes relevant and makes a convincing case to investigate if good governance matters for CO2 emissions in the developing countries. …