The role of democracy and institutional quality on environmental performance: empirical evidence using a stochastic directional distance model

Abstract This paper investigates the role of institutional quality and democratic governance in enhancing environmental performance across global economies. As countries confront escalating environmental challenges, understanding these factors is crucial for achieving sustainable development. Despite existing literature emphasizing the importance of high-quality institutions and democratic governance in improving environmental performance, empirical evidence remains inconsistent. Our study refines this understanding by exploring how specific dimensions of institutional quality and varying degrees of democracy impact environmental performance. Basically, we use a stochastic directional distance model to assess how democracy and institutional quality directly affect environmental performance in an unbalanced heterogeneous sample (127 economies) between 1996 and 2018. We find that high institutional quality generally improves environmental performance, though its impact varies with different degrees of democracy. The synergy between higher institutional quality and democratic governance enhances environmental performance, though the effects’ magnitude and direction are context-dependent. This paper provides new insights into how institutional quality and democratic governance work together to enhance environmental performance, offering valuable implications for policy development aimed at balancing economic growth with ecological sustainability.