Regulatory Quality and Sustainable Economic Development

Recently, an importance of often contradictory relationship between the environmental quality and economic performance has been discussed both at economic and political level. Whereas the quality of environment is an essential condition to simply survive and can be considered as one of consumers' goals, economic performance seems to be a primary goal of the majority of firms and consequently of the whole economies. The cohesion of both aspects then seems to be inevitable. However, necessary protection of environment can be reinforced only in presence of correct, enforceable institutions and sufficient wealth that shift preferences towards clean environment. The study is dedicated to the assessment of the relationship among institutional context, environmental quality and degree of economic development using panel vector autoregressive techniques for the sample of 166 countries. It is aimed to show, how the environment can be conserved taking satisfactory living conditions into account. The study demonstrates that more efficient institutional setting leads to a situation, in which environmental quality improves together with economic development.