Abstract
To investigate the role of governance on environmental quality, two hypotheses are developed; when good governance practices dominate governance structures, then improvement in governance levels leads to better environmental outcomes, and when bad governance practices dominate governance structures, then improvement in governance levels leads to deterioration in environmental outcomes. To test these hypotheses for 115 countries clustered as high, middle, and low income over the period of 2000 to 2015, system generalized method of moments is employed. The results show that an improvement in governance increases environmental quality in high income countries, while it decreases environmental quality in middle- and low-income countries. We concluded that high-income countries should improve governance structures to get better environmental outcomes without changing their environment-oriented policies and governance practices, and middle- and low-income countries should bring in structural changes to their governance systems by prioritizing environmental outcomes over economic outcomes for improving environmental quality.