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Water Quality and the End of Communism: Does a Regime Change Lead to a Cleaner Environment?

Whether a change in regime from communism to democracy improves or worsens environmental quality is still an open question. This paper focuses on seven European countries that moved from communism to democracy in 1990 or 1991. Their political transition included a move to a market economy, which enhanced productive efficiency and increased the rate of economic growth. A democratic government also allowed citizens a political channel through which to express their demand for a cleaner environment. What was the overall effect of the regime change on environmental quality? I examine the relationship between per capita income and water quality in these seven countries using economic and environmental indicators for 1987-2004 from the European Environmental Agency, a period that includes years both before and after the change. The water quality indicators are annual median concentration in river water of dissolved oxygen, biochemical oxygen demand (BOD), nitrate, and total phosphorus. These are all measured at the station level, and the dataset includes many station characteristics. I begin by estimating an environmental Kuznets curve (EKC) for each water quality indicator. The EKC reflects the hypothesis that environmental quality at first tends to worsen as GDP per capita rises but then to improve as GDP per capita increases further, so there is an inverted U-shaped relationship between pollution and GDP per capita. I confirm this hypothesis for BOD and nitrate. Next, I show that current and lagged GDP per capita have significantly different impacts on these water quality indicators. While an increase in current GDP per capita tends to worsen water quality, an increase in lagged per capita income (which I interpret as a rise in permanent income) increases water quality. The combined effects suggest that the regime change had a favorable overall impact on water quality in these post-communist countries.