Corruption, trade openness, and environmental quality: A panel data analysis of selected South Asian countries

Abstract

Globalisation has increased the importance of trade manifold, and the idea of sustainable development has gained greater momentum. However, these developments also depend on the quality of institutions in the economy. Thus, sustainable development can not be achieved unless a country has sound and independent institutions. This paper discusses the idea of environmental sustainability to demonstrate the impact of trade, corruption, and income level on environmental policy formation. Applying the fixed effects model, the study concludes that trade affects the environmental quality positively, but the level of corruption in the economy can distort this relationship. The demand for environmental quality increases as the output level starts rising, but it is also offset by the corruption level. Therefore, policy-makers must consider the importance of institutions in the economy before formulating a welfare-directed policy in such a dynamic and complicated system. © The Pakistan Development Review.