Commodity windfalls, political regimes, and environmental quality

Abstract

Despite concerted global efforts to curb environmental degradation (proxied by greenhouse gas emissions), climate change mitigation policies appear to be failing in reducing carbon emissions, with considerable differences in the levels and rates of emissions across countries. To bridge the gap between the observed national commitments to climate targets and the reality of rising greenhouse gas emissions, this paper examines how the incentives generated by resource endowments and commodity windfalls (proxied by international commodity price booms or fluctuations) are critical for our understanding. Using a significantly larger and more representative international sample than extant research, we document, applying both static and dynamic econometric techniques to a panel of 179 countries during the period 1970-2018, that a rise in commodity windfalls has a positive and significant effect on carbon emissions. We then explore classification of countries into democracies and autocracies as potential channels for the heterogeneous effects of commodity windfalls on environmental quality, finding that a rise in international prices of exported commodities significantly leads to an increase in carbon emissions in democratic countries, with no significant effect on carbon emissions in autocratic countries. These results are robust to various sensitivity checks.