The effect of trade and corruption on environment: A panel data analysis on developed and developing countries

Since the increasing volume of international trade in 80's, the economic activities boomed in the world. As the environmental effects of boomed economic activities reached critical threshold level in 90's, the economists has started to examine trade and environment relation. Also the relationship between growth and corruption is an issue that has been examined for many years. From the early 2000's the corruption and environment relation has been examined by considering regulative effects of corruption on environmental issues. The relationship between trade and corruption is also another issue that has been examined since many decades. However in the literature there are a few studies that examine trade, corruption and environment relation. The aim of this study is to examine the relationship between trade, corruption and environment in 75 countries for the period between 2002 and 2012 by using panel data analysis. In this analysis the countries are classified in two groups as Developed and Developing Countries. According to the result of the empirical examinations it is robustly proven that trade increases the environmental quality while there is weak evidence that corruption increases environmental quality through depressing economic growth. Within the scope of Environmental Kuznet's Curve approach, it is proven that in line with the increasing per capita income the environmental quality demand also increases for all country groups. Key words: Environment, Trade, Corruption, Environmental Kuznet's Curve, Panel Data Analysis