Curvature and turning point of the environmental Kuznets curve in a global economy: the role of governance

Abstract

This study explores the role of governance in shaping the environmental Kuznets curve (EKC), especially focusing on its curvature and turning point. The study highlights the role of various governance indicators in the formulation, implementation, and enforcement of environmental regulations. However, the study asserts that since in developing countries poverty, infrastructure, and human development are valued above a clean environment, good governance is less likely to contribute to mitigating pollution in developing countries. Using a panel of 160 countries, the study finds that better governance helps bring down the critical level of per capita income at which the relationship between income and pollution turns negative. Furthermore, the EKC can be shifted downward by improving governance in the respective countries. The study, however, reveals that the dividends of better governance are more pronounced at higher income levels. Since good governance works only when the desired regulations are in place, it is recommended that for poor countries aid packages for governance reforms need to emphasize the enactment of specific environmental regulations. Investment in institutions is expected to yield maximum dividends in such countries that have gained high-income status but are still lacking in institutional development.