INTERACTION OF INSTITUTIONS AND ENVIRONMENTAL DEGRADATION.

Although there are many studies upon questioning the relation between the economic growth, energy consumption and environmental quality, the relationships between the institutional spheres in which the economic activities realize were not questioned adequately in those studies. To obtain sustainable development, institutions should be added to the analysis. To fill the gap, relationship between institutional quality and CO2 emissions was questioned in this study. The datum for 13 middle income countries which covers the period between the years from 2001 to 2011 was examined by the panel data analysis method. In the realized study, the Pollution Heaven Hypothesis was also examined. Variables which will represent the institutional quality level are taken as the subcomponents of World Governance Index. These variables are the control of corruption, the government effectiveness, political stability and the absence of violence/terrorism, the regulatory quality, the rule of law and voice and accountability. Per capita income, fossil fuel usage and energy consumption were used as an auxiliary explanatory variables in our model. Results support that institutional quality effect environmental quality directly and indirectly. The effects of the variables which used as indicators of institutional quality differ in the analysis.