The Interaction Between Corruption, Pollution and Openness: A Panel Data Study

Abstract

We try to extend the environment, corruption, trade (openness) literature by endogenizing corruption and openness. Most papers on this brand new literature have assumed corruption and openness to be exogenous and therefore they have ignored the possibility of the joint determination of these three variables. In general, those papers looked at the impact of openness and corruption on environmental policy/quality treating openness and corruption to be determined outside the system. However, in reality, there are a plethora of variables that impact both corruption and openness of a nation. Therefore, ignoring such variables will cause endogeneity problem. We try to correct this problem in the existing literature by carrying out a simultaneous determination of these variables through a system of equations.