The Middle East and North Africa (MENA) countries are among the top emitters of CO2 and SO2 in per capita terms in the world. Our goal is to show that whether investing in the democratic development of countries is an effective tool to make the economic growth in this region more environmentally compatible. We use pooled OLS, country and time fixed and random effects, and system GMM method to estimate the marginal pollution impact of a 1% increase in GDP per capita at different levels of democracy from 1960 to 2005.

Regardless of method of estimation, we can see a robust evidence for the EKC hypothesis for the case of CO2 and SO2 emissions. There is an inverted U shaped relationship between income per capita and global and local pollution in the MENA region, controlling for other demographic, economic and political factors. Regarding our second variable of interest namely moderating role of democracy, we have noticed a highly statistically significant negative interaction term between democracy indicator and income for the case of SO2 emission. The moderating role of democracy in income-pollution is not statistically different from zero in the case of global pollution (CO2).

This empirical finding is in agreement with the theoretical argument of Farzin and Bond (2006). According to their argument, at rather lower income per capita levels and by increasing income inequality “it is the environmental preferences of the poor (i.e., abatement of local pollution), and not those of the rich (reduction of global pollution), that dominates the state's environmental policy.”

Democratization (as measured by within country changes in our democracy measure in fixed effects regressions) provide an opportunity for the masses in the MENA region to pressure the government for better policy making and regulations in the local environment. Given an average level of GDP per capita (6912 USD), a one standard deviation increase in real GDP per capita at the minimum level of democracy index (0, e.g., Saudi Arabia) raises SO2 emissions per capita by 85%, respectively. This impact could be reduced to 6% in the case of maximum level of democracy (1, e.g., Israel).

Given a minimum level of GDP per capita (442 USD, e.g., Yemen), a one standard deviation increase in the GDP per capita at the mean level of democracy index amplifies SO2 emission per capita by 108%.The less developed countries of the MENA region can reduce the negative externality of their economic growth by investing in their political institutions. For example, if Yemen with the minimum level of GDP in the MENA region could increase its democratic institutional quality to the level of Israel or Turkey, then the marginal impact of economic growth on SO2 emission could reduce to 29%. These results suggest that “growth now, clean later” strategy can convert to “growth and clean now” by paying attention to democratic institutions.