Table Of ContentCorruption, Development and the Environment
Lorenzo Pellegrini
Corruption, Development
and the Environment
1 3
Dr. Lorenzo Pellegrini
International Institute of Social Studies (ISS)
Kortenaerkade 12
2518 AX The Hague
The Netherlands
pellegrini@iss.nl
ISBN 978-94-007-0598-2 e-ISBN 978-94-007-0599-9
DOI 10.1007/978-94-007-0599-9
Springer Dordrecht Heidelberg London New York
Library of Congress Control Number: 2011920998
© Springer Science+Business Media B.V. 2011
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Acknowledgements
The intellectual contribution of Reyer Gerlagh is gratefully acknowledged. Reyer
has been a stimulating PhD supervisor and the co-author of four articles that—in
revised versions—are included in this book.
v
Contents
1 Introduction ................................................................................................. 1
1.1 Background .......................................................................................... 1
1.2 Economics of Corruption ..................................................................... 3
1.2.1 Corruption and the Environment .............................................. 5
1.3 Research Questions and Outline .......................................................... 6
References ..................................................................................................... 10
2 Economic Analysis of Corruption .............................................................. 13
2.1 Introduction .......................................................................................... 13
2.2 T he Definition of Corruption ............................................................... 14
2.3 Corruption and the Private Sector ........................................................ 19
2.3.1 Perceptions of Corruption ........................................................ 20
2.3.2 Opportunities for Corruption and Anti-corruption
Strategies .................................................................................. 21
2.3.3 Corruption and Market Failures ............................................... 23
2.4 T he Measurement of Corruption .......................................................... 24
2.5 Discussion ............................................................................................ 25
References ..................................................................................................... 26
3 Causes of Corruption: A Survey of Cross-Country Analyses
and Extended Results ................................................................................. 29
3.1 Introduction .......................................................................................... 29
3.2 Theories of Determinants of Corruption .............................................. 33
3.2.1 Historical Roots of Corruption ................................................. 34
3.2.2 Contemporary Causes of Corruption ........................................ 35
3.3 Data Sources on Corruption ................................................................. 37
3.4 Empirical Analysis ............................................................................... 38
3.5 Limits and Interpretation of Econometric Cross-Country
Analysis ................................................................................................ 45
3.6 Discussion and Conclusions ................................................................. 47
Appendix ....................................................................................................... 48
References ..................................................................................................... 49
vii
vviiiiii Contents
4 The Effect of Corruption on Growth and Its Transmission
Channels ..................................................................................................... 53
4.1 Introduction ........................................................................................ 53
4.2 Cross-Country Growth Regressions ................................................... 57
4.3 T ransmission Channels for Corruption .............................................. 60
4.3.1 The Investment Transmission Channel .................................. 61
4.3.2 The Schooling Transmission Channel .................................... 62
4.3.3 The Trade Openness Transmission Channel .......................... 62
4.3.4 The Political Violence Transmission Channel ........................ 63
4.4 Direct and Indirect Effects of Corruption .......................................... 63
4.5 The Long-Term Effect of Corruption on the Transmission
Variables ............................................................................................. 65
4.6 Conclusions ........................................................................................ 67
Appendix 1: Long-Term Income Effects .................................................... 68
Appendix 2: Robustness Checks ................................................................. 69
Appendix 3: Data ........................................................................................ 72
References ................................................................................................... 73
5 Corruption, Democracy, and Environmental Policy: An
Empirical Contribution to the Debate .................................................... 75
5.1 Introduction ........................................................................................ 75
5.2 Theoretical Hypotheses and Their Empirical Testing ........................ 77
5.2.1 Democracy and the Environment ........................................... 77
5.2.2 Corruption and the Environment ............................................ 79
5.2.3 Institutions and the Environment ........................................... 80
5.3 T he Data ............................................................................................. 82
5.4 Empirical Results ............................................................................... 85
5.4.1 The Case for Interaction Between Democracy and
Income Variables .................................................................... 90
5.5 Implications for the Environmental Kuznets Curve ........................... 92
5.6 Conclusions ........................................................................................ 94
Appendix 1 .................................................................................................. 95
Appendix 2: Data ........................................................................................ 96
References ................................................................................................... 96
6 Corruption and Environmental Policies: What Are the
Implications for the Enlarged EU? .......................................................... 101
6.1 Introduction ........................................................................................ 101
6.2 Determinants of Environmental Policy Stringency ............................ 105
6.2.1 Cross-Country Evidence ........................................................ 106
6.3 Environmental Policies and Institutions in the EU ............................ 111
6.3.1 The Accession Process and Its Review: Focus
on Corruption ......................................................................... 111
6.3.2 New and Old Member States of the EU: Environmental
Policies and Corruption Levels .............................................. 113
Contents iixx
6.4 Conclusions ........................................................................................ 115
Appendix: Data ........................................................................................... 116
References ................................................................................................... 118
7 The Rule of the Jungle in Pakistan: A Case Study on
Corruption and Forest Management in Swat ......................................... 121
7.1 Introduction ........................................................................................ 122
7.2 Institutions and Forest Management .................................................. 124
7.2.1 Corruption and Forestry ......................................................... 124
7.2.2 Methodological Framework ................................................... 127
7.3 A Profile of Swat, Pakistan ................................................................. 129
7.3.1 Geography and Ecology ......................................................... 129
7.3.2 History and Institutions .......................................................... 130
7.4 Alternative Forest Management Regimes in Swat ............................. 132
7.5 Deforestation in Swat, Pakistan ......................................................... 133
7.5.1 Incentives and Institutions over the Forests of Swat:
Focus on Corruption ............................................................... 134
7.6 Strategies for Institutional Change ..................................................... 136
7.6.1 The Reform Process of the Early 2000s ................................. 137
7.6.2 Institutional Reforms .............................................................. 139
7.6.3 Paths of Change ...................................................................... 140
7.7 Conclusions ........................................................................................ 144
Appendix: Sources of Information in the Study ......................................... 145
References ................................................................................................... 145
8 Conclusions and Future Research ........................................................... 149
8.1 Main Conclusions ............................................................................... 149
8.2 Policy Conclusions ............................................................................. 151
8.3 Future Research ................................................................................... 153
References .................................................................................................... 156
Author Index .................................................................................................... 157
Subject Index ................................................................................................... 159
List of Figures
1.1 Overview of the issues analysed in the Chaps. 3–6
(the chapters based on econometric analysis) ........................................... 7
3.1 A higher score (a darker colour) indicates higher corruption
perception. Our elaboration on data from Kaufmann et al. (2005) ........... 31
4.1 Growth rate of per capita income, in the period 1980–2004,
versus corruption, in the period 1980–1985. Growth rates are
corrected for initial income effect as in regression (1) ............................. 60
6.1 Environmental Regulatory Regime Index ( ERRI). A darker
colour indicates more stringent environmental policies. Only
countries that are EU members and for which the ERRI is
available are included in the map ............................................................. 102
6.2 G DP per capita (measured in 1997 in Euro adjusted for pur-
chasing power parity). A darker colour indicates higher GDP
levels. Only countries that are EU members and for which the
ERRI is available are included in the map ................................................ 104
6.3 Scatter plot for corruption and the Environmental Regulatory
Regime Index. The regression line is estimated to fit all coun-
tries in the sample, not only EU countries ................................................ 109
6.4 Corruption Perception Index 2001. A darker colour indicates
higher perceived corruption. Only countries that are EU mem-
bers and for which the ERRI is available are included in the map ........... 112
6.5 Scatter plot with the ERRI (adjusted for income) on the y-axis
and corruption on the x-axis ..................................................................... 114
xi
List of Tables
3.1 Regressions results .................................................................................. 39
3.2 Descriptive statistics ............................................................................... 48
4.1 Growth regressions as in Eq. 4.1 ............................................................ 59
4.2 Indirect transmission channels as in Eq. 4.2 ........................................... 62
4.3 Growth regressions as in Eq. 4.3 ............................................................ 64
4.4 Relative importance of transmission channels, as in Eq. 4.3 .................. 65
4.5 Long-term effects of corruption on transmission variables,
as in Eq. 4.4 ............................................................................................ 66
4.6 Indirect transmission channels calculated as in Eq. 4.5 .......................... 67
4.7 Growth regressions as in Eq. 4.1 ............................................................ 70
4.8 Indirect transmission channels as in Eq. 4.2 ........................................... 71
4.9 Growth regression as in Eq. 4.3 .............................................................. 71
4.10 Relative importance of transmission channels as in Eq. 4.3 ................... 72
5.1 Results from statistical analysis as in Eq. 5.1 ......................................... 86
5.2 Results from statistical analysis as in Eq. 5.1 ......................................... 89
5.3 Results from statistical analysis as in Eq. 5.1 ......................................... 91
5.4 Results from statistical analysis as in Eq. 5.2 ......................................... 95
6.1 Regressions as in Eq. 6.1 ........................................................................ 108
6.2 Correlations ............................................................................................. 110
6.3 Descriptive statistics for EU countries.................................................... 115
6.4 Data for EU countries ............................................................................. 117
6.5 Descriptive statistics ............................................................................... 117
xiii
Chapter 1
Introduction
Abstract The purpose of this book is to explore, in a broad perspective, how cor-
ruption affects economic growth and environmental protection. Other aspects of
development, such as education and inequality in entitlements to natural resources,
will also be considered within the context of the main objectives. The introductory
chapter provides an overview of economic approaches to corruption, of the rela-
tionship of corruption with environmental policies, the research questions and the
book’s outline.
Keywords Corruption in history • Pervasiveness • Economics
1.1 Background
Moral condemnation of corruption has a long history. Take the case of King David
and Bathsheba, as told in the Bible (1 Samuel 11:1–28). During the Israeli siege of
the city of Rabbah, David—King of Israel—falls in love with Bathsheba, a married
woman. Her husband, Uriah the Hittite, is a trustworthy member of the army. David
sends Uriah to the general with a sealed letter carrying the message that Uriah is
to be employed in the front line where the fighting is the fiercest to get him killed.
After Bathsheba’s mourning for her husband is over, David brings her to his house
to be his wife. The biblical story continues with a parable that makes clear how
much the Lord was displeased by David’s abuse of power, and the child born out
of the union of Bathsheba and David dies. David abused the rulers’ powers and his
L. Pellegrini, Corruption, Development and the Environment, 1
DOI 10.1007/978-94-007-0599-9_1, © Springer Science+Business Media B.V. 2011
