Journal of Accounting Auditing and Business - Vol.2, No.2, 2019 10.24198/jaab.v2i2.22585

Public and Environmental Performance: An International Perspective

Sofik Handoyo Faculty of Economics and Business Universitas Padjadjaran

Furry K. Fitriyah Faculty of Economics and Business Universitas Padjadjaran

Abstract: Purpose of the study is to examine the relationship of public governance and the national environmental performance. Background of the research is driven by the fact that countries located in the same geographic showed different environmental performance. It is believed that public governance will determine national environmental performance. The higher public governance index, the better national environmental performance will be. The subject of the research is the countries that are listed as world bank member. Objects of the research are public governance and environmental performance. Public governance was represented by variables, namely accountability, political stability, government effectiveness, regulatory quality, and control of . Multiple regression analysis was applied in this research. The results showed that accountability, political stability, regulatory quality, and control of corruption have a positive and significant correlation with the national environmental performance. Meanwhile, variable accountability did not correlate with national environmental performance. Government effectiveness was dropped from the analysis due to there is multicollinearity. Keywords: Performance, Environmental, governance, Accountability, Multicollinearity

Introduction by the majority of countries participants that there is the need to reduce greenhouse One of the eight Millennium gas emissions as a response to the Development Goals (MDGs) introduced by occurrence of global warming. In 1992, the the (UN) at the Millennium Earth Summit was held in Rio de Janerio, Summit in 2000 is environmental which results in an agreement not binding sustainability. At that Summit, it was agenda 21 with the theme sustainability achieved the United Nations Millennium development. The events initiated by the Declaration agreement, which states that United Nations, it provided an members involved in the meeting should understanding that environmental issues are achieve MDGs by the end of 2015. Long an essential agenda for the international before the Millennium Summit is held, in community and a challenge that must be 1992, the climate change convention was met collectively between countries held in Kyoto, known as the Kyoto throughout the world (Scruggs, 1999) Protocol. In that event, treaty agreed upon

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The idea of sustainable According to The Yale Center for development was inspired by the conditions Environmental Law & Policy, National of planet earth, which is increasingly Environmental Performance Index can be unfriendly for shelter. There is global measured through nine dimensions which warming suspected by the melting of the include health, quality air, water quality, polar ice sheets and rising sea levels, water resources, agriculture, forests, thinning ozone layer which results in fisheries, biodiversity diversity, and energy exposure to ultraviolet light increasingly climate. Accumulation of these nine sharp earth, weather changes (Fiorino, dimensions represents National 2010). Carbon gas emissions and disasters Environmental Performance Index. The nature are things that are presumably practice of industrialization and caused by industrialization and exploitation exploitation of natural resources, when of natural resources that are not those things are accumulated, it will environmentally friendly. The exploitation represent an environmental performance of of natural resources by industries one side the country. Thus, the national can lift the economy of the country, and the environmental performance index is other side can also cause negative impacts reflection industrialization and exploitation on the environment in which the industry of natural resources within the country. operates. In this case, the involvement of the state becomes significant to make sure The level of national environmental sustainability development can be achieved performance index depends on the awareness of the business organization to The industrialization that is carry out its business activities comply with concerned with the environment is environmental protection programs. It is, influenced by two the main party, the therefore, the role of the government as a industry itself and the government as the regulator and monitor are crucial. National regulator. Practice environmentally environmental performance is resulting friendly industry requires investment, and from good state governance (Dasgupta, the cost is not cheap. With the principle of 2006; Rodrik 1997, Emerson et al., 2010). cost and benefit, it is deficient in expecting If a state’s governance is good, it is business organizations to conduct industry expected that governance in industry practices that are environmentally friendly practice and exploitation of natural with its awareness. It is, therefore, the role resources is also in line. The World Bank of the government which has compelling describes that a measure of a state’s power becomes crucial for realizing the governance can be identified from seven sustainability development elements which include accountability, political stability and the absence of Sustainability development is one violence, government effectiveness, quality of the indicators of national environmental regulations, rules and legislation and performance. Environmental performance control of corruption. is the main component besides social performance and economic performance to The Yale Center for Environmental evaluate the overall performance of an Law & Policy works with The Center for entity (Breaban & Sandu, 2013). The International Earth Science Information dimensions of environmental performance Network each year releases an measures involve many things. To make it environmental performance index that easier to understand by stakeholders, the covers 178 countries. Based on the index value of environmental performance is released by The Yale, it shows that the stated index number. It represents the national environment performance index accumulation of many dimensions of varies between regions and between performance measures environment. continents. The countries which are

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Journal of Accounting Auditing and Business - Vol.2, No.2, 2019 10.24198/jaab.v2i2.22585 geographically close to each other can environmental performance cross-country produce a very sharp difference. In 2014, perspective (Duit, 2015). More environmental performance index comprehensive studies are needed by Indonesia was in rank 112th, and Singapore including rational factors such as public ranked 4th out of a total of 178 countries. In governance. Furthermore, empirical testing Europe, the Swiss state was on rank 1st has not been done by previous studies. while Bosnia Herzegovina is at position Governance is a variable that has a rational 107th. From this phenomenon, it shows that relationship with environmental environmental performance is not performance. However, there has not been influenced by similarity or the geographical much research at the country level. For this proximity of a country. There is a reason, study the relationship between possibility that inherent characteristic of the public governance and national country related to national environmental environmental performance becomes performance. In this study, the governance relevant. of a country is proposed as a variable that has an association with national Although environmental problems environmental performance. Therefore, the have the same character globally, question to be answered in this study is "the investigations involving comparisons extent of governance a country has a role in between countries make it possible to achieving national environmental identify significant variables that affect performance? " environmental performance (Jahn,1998). There have been many studies on the links The environmental performance of between governance and environmental a country varies significantly between performance at the corporate level, but still geographical regions and between limited in number studying at the state level continent. Many studies have linked that with an international perspective. Because environmental performance is influenced environmental problems are a global by factors related to the economy as well as problem, hence it becomes relevant if the economic growth and per capita income. study of the environment is carried out with However, it is believed that there are other taking a broad scale, namely international. factors besides the contributing economic Furthermore, there are still many empirical factors in achieving a national kinds of researchers who study the environmental performance; in this case, relationship between environmental the intended factor is state governance. performance and governance between Understanding the factors associated with countries, but the results of the study not the national environment of a country is come consensus unanimously (Halkos et challenging. If we can understand the al., 2013). For this reason, with the factors related to national environmental existence of this study, it is expected these performance, then we can formulate the studies can provide input information or correct policies that support the become reference material for future achievement of national performance research and answer the inconsistency environment (Fiorino, 2011). results of previous study. Purpose of this study is to reveal the association of public There is insufficient attributes namely available that explains the national accountability, political stability, environmental performance. It is caused by government effectiveness, regulatory the absence of a theoretical approach to the quality and control of corruption with the empirical questions to understand national environmental performance variations in environmental performance between countries. There are still gaps or black boxes to explaining variations in

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Literature Review and Hypothesis of indicators used, and it depends on the Development institution that publishes it. Three indicators are widely used as a reference to assess a national environmental Environmental Performance performance, namely, Environmental Performance Index (EPI), Environmental Environmental performance is Sustainability Index (ESI) and Ecological defined as very diverse in each individual Footprint (EF). EPI is the most popular and organization. However, the essence of measure of national environmental all definitions refers to the relevant measure performance (Fiorino, 2010). EPI uses a with the protection of the environment comprehensive set of indicators that can which includes water, air, land, ecosystems, represent the concept of environmental and sources natural resources (Bran et al., sustainability. EPI covers the measurement 2011, Grafton and Knowles, 2003). of national environmental performance Scruggs (1999) defines environmental including the extent of land, air pollution performance as a result of human response and energy consumption (Esty et al. 2005, to environmental pollution problems. 2006, 2008) Whereas Alvarez (2014), defines that environmental performance refers to effects EPI is an environmental from business activities and the use of performance indicator published by The natural products, such as consumption of Yale institution Center for Environmental resources natural power, produce waste and Law & Policy collaborating with Columbia emissions. The terminology of University (Center for International Earth environmental performance, according to Science Information Network), the most Duit (2005) related to efforts to overcome ambitious collaboration project to measure environmental degradation, which includes a national environmental performance management of natural resources, and (Esty et al.2008). EPI focuses on two eliminating the practices that can endanger objectives, namely reducing the the environment. The national environmental burden impact on human environmental performance can be health and protection of ecosystems and understood as an effort by the government natural resources (Alvarez et al., 2014, to provides public goods with an Emerson et al. 2012)). At EPI, the impact of environmentally friendly approach. In this environmental burdens towards human case, these efforts can be measured from the health is classified into indicators, namely, effort to protect habitat that will become air pollution and water pollution. While the extinct, reduce greenhouse gases for indicators of protection of ecosystems and ecological systems better global (Duit, natural resources the consists of the effects 2005). of air pollution on ecosystems, the effect of water pollution on the ecosystem, National environmental biodiversity and habitat, use of productive performance is the result of various natural resources (forestry, fisheries, and functions and factors that are not only agriculture) and environmental change limited to income, knowledge, and but also (Alvarez, 2014). EPI ranks the environmental conditions country environmental performance of a country (Djoundourian,2012). Unlike the involving two groups critical indicators of measurement of economic performance, environmental health and ecosystem which has established standards, the vitality. The indicator expressed on a scale, national environmental performance has no which is a measure of the national certain standard that is commonly used environmental performance (Hsu et al., (Fiorino, 2011). The measure of national 2013). environmental performance varies in terms

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EPI ranks the country towards and business organizations in carrying out achievements related to policy the organizational functions will not work environment taken by the country is correctly as planned. In the context of the compared to the specified size by Yale and organization government, most researchers, Columbia University network. EPI policymakers, aid agencies, and involves 25 indicators organized into ten beneficiaries recognize that good category groups and two main governance is a basic recipe to achieve environmental policies (environmental sustainable development (Kaufmann and health and ecosystem vitality). The final Kraay, 2007). Sustainable development score is obtained by using the average cannot be separated from insight into good numbers are classified into five . Weak performance categories of very management System, including the performance scales good to very bad management of government, was indicated (Breaban & Sandu, 2013) to have a negative influence on the environment (Halkos et al., 2013).

Governance Many studies reinforce the opinion that environmental performance related to The terminology of governance is the country's governance. In 2002, Wang generally divided into two categories, and Di did a study the determinants that namely governance terminology influence environmental performance. The management that refers to corporate result concludes that national organizations and governance terminology environmental performance is influenced that refers to government organizations. by public governance. Przeworski et al. The slogan is good , (2000) argue that economic growth does and good government governance is a not directly affect national environmental reflection of the concepts of two performance, but it is mediated by public governance meanings at different levels. governance. Emerson et al. (2010) argue Although in principle, the meaning meant is that public governance is not only as the same, namely good organization, but mediation factors for environmental the forming components are different. In performance, but also the main trigger for this chapter, the terminology is discussed national environment performance. are related to governance at the state or Dasgupta (2006), and Rodrik (1997) stated government level. World Bank in 1992 that public governance has a strong effect defines the governance of a country as a on the quality of the environment and way of exercising power in state becomes the main elements to understand management for economic development the development and environmental and resources – resources social. It performance. Measuring public governance includes government processes chosen, still raises much debate about indicators monitored, and replaced, the capacity of the used to represent a measurement. However, government to effectively formulate and the World Bank has an indicators and has implement policies, respect for the been using as a reference to assess public community and the conditions of the governance. The indicators is known as The institutions that govern the economy and Worldwide Governance Indicators (WGI). social interaction (Kaufmann and Kraay, The World Bank identifies six dimensions 2007) for measuring public governance namely ; Governance is believed to be the 1) Accountability, 2) Political stability, 3) key for government and business Effectiveness of government, 4) Quality of organizations in achieving the goals set. regulation, 5) regulations and legislation Without proper governance, government, and 6) Control of corruption

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Accountability and Environmental infrastructure for environmental protection Performance regulations. Therefore, the hypothesis is formulated as follows: Government accountability is the form of accountability to the public for the Hypothesis 1: National environmental use of public funds. Rationalization performance is positively associated with between accountability and environmental government accountability, the higher performance is that public funds are used government accountability index, the one of which is for the interests of the wider higher national environmental community which includes the provision of performance will be health-supporting factors includes healthy air, water, and soil so that the quality of life of the community becomes increase. Political Stability and Environmental Performance Rechtschaffen and Markell (2003) argue that in an era of accountability, the Political stability refers to government is required to openly convey conducive conditions in governmental the performance, in this case, including covering internal, regional, and government performance in terms of international political stability. environmental quality. Rationalization of stability politics with Bianchini and Ravely (2011) argue environmental performance is the same as that the relationship between government political stability thinking with economic accountability and environmental growth. Certain country with stable performance is more related to economic political conditions, investors will have the factors. The state budget is collected from confidence to invest their capital in that public funds (tax). Therefore, it must be country. The simple assumption of the accounted for back to society. Bianchini stable political conditions associated with and Ravely referred environmental environmental performance conditions is accountability definition to Bran et al. that the country will focus on national (2011) that increased competition in the development, which includes the market global and budgetary disciplines development of environmental quality, and require accountability with a high level of not preoccupied with political issues. discipline for all expenses, including those Kelleher et al. (2009) argue that invested for environment interests. environmental quality is dependent on Environmental accountability government institutions and their chosen through several mechanisms and policies. It is explained that, if a country's procedures such as environmental audit, political conditions are stable, then the accountability panel, community policy formulated by the government have complaints board, and ombudsman more orientation on national development institution (Grigorescu, 2010, Buntaine, purposes, in this case also includes policy 2015). One crucial element related to related to environmental protection. Fiorino environmental accountability is public (2010) argue that there is growing evidence participation (Paddock, 2004). Active that links between environmental public participation can inspire the degradation political legitimacy, and government about policies related to the political stability. Therefore, the hypothesis environment taken and also the role of the proposed as follows: public in carrying out the monitoring Hypothesis 2: National environmental function. Rechtschaffen and Markell (2003) performance is positively associated with argue that weak accountability has an the political stability of government, the impact on administration from higher political stability index of the

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Journal of Accounting Auditing and Business - Vol.2, No.2, 2019 10.24198/jaab.v2i2.22585 government, the higher national effectiveness and performance reduction in environmental performance will be. greenhouse gas emissions, ozone health, and water quality. Therefore, the hypothesis is formulated as follows: Government effectiveness and environmental performance Hypothesis 3: National environmental performance is positively associated with Effective government terminology effectiveness government of the country, the refers to the right advice in achieving goals. higher government effectiveness index, the Effectiveness government indicates that the higher national environmental government can achieve the matters that are performance will be. in line with development planning. Effectiveness of public administration and governance may be a trigger that is relevant Regulations Quality and Environmental to the quality of environment development, Performance which relates with the quality of the bureaucracy, the competence of civil Regulation is the rules and norms servants, independence civil servants from adopted by the government that has political pressure and government consequences in the form of fines or penalty credibility with commitment policy for those who violate it (Coglinanese, (Alvarez, 2014). If government institutions 2012). Regulation is a government function correctly, then collective problems instrument to realize the intended purpose related to environmental problems can be achieved by the government, one of which overcome (Duit, 2005). The effectiveness is the public interest in creating a healthy of government institutions related to living environment (Long, 1997). environmental problems perhaps a Regulations quality are regulations that can reflection of the effectiveness of the overall achieve effectively the goals determined by government institution (Dasgupta, 2006) the government. The regulations are and more effective institutions will be more expected to support the achievement of successful in combating environmental national environmental performance targets degradation compared to those who have (Esty and Porter, 2001). If the level of weak institutions (Duit, 2005). There is a quality regulation is high, there are postulate that institutional arrangements indications that the quality of have a tremendous impact on the environmental regulation is also the same. environmental quality of a country (Jahn, Scruggs (1999) argues that regulation is 2008). The national environmental strict to provide incentives for businesses performance will be greatly influenced by a and governments to be more flexible in national commitment to environmental working together to achieve better issues, policies, and problem-solving environmental performance. Quality capacities (Fiorino,2010). regulation can be identified from indicators of transparency, not and Researches on the relationship efficiency (OECD). Quality regulation help between government effectiveness and to realize and improve public policy environmental performance have been objectives that include including safety, conducted previously. Esty et al. (2008) security, health, and environment (Treasury concluded that there was a positive Board of Canada Secretariat, 2011). relationship between government Therefore, the hypothesis is formulated as effectiveness with a national environmental follows: performance index. The research conducted Hypothesis 4 by Kaufmann et al. (2007) showed a : National environmental positive correlation between government performance is positively associated with the quality of regulation, the higher

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Journal of Accounting Auditing and Business - Vol.2, No.2, 2019 10.24198/jaab.v2i2.22585 regulatory quality index, the higher countries want to improve the economy and national environmental performance will performance of the environment, the level be of corruption must be reduced. In line with Welsch (2004), Kelleher (2009) also argues that countries that have low income can Control of Corruption and Environmental improve environmental and economic Performance conditions by reducing the level of The practice of corruption is corruption. Meyer et al. (2003) who detrimental not only to the state but also examined institutional factors and the rate toto the quality of the environment. The of deforestation in 117 countries found a state may have regulations related to strong correlation between levels of environmental protection. However, if in corruption of a country with the rate of the implementation process of the deforestation. Therefore, the hypothesis is regulation is not executed correctly, the formulated as follows: purpose of environmental protection Hypothesis 5: National environmental programs will not be achieved. The mode performance is positively associated with that often occurs on corruption cases in the the control of corruption, the higher control context of environmental protection is the of corruption index, the higher national practice of bribery for parties that must environmental performance will be carry out environmental protection activities to avoid penalty and fines. In this case, the enforcement of regulatory laws Research Methods concerning the environment of the apparatus is very vital. The population of this study was all Researches that studies the countries that are members of the relationship between the level of corruption organization United Nations. Sampling of a country with national environmental technique was used in this study is the performance are mostly consistent. purposive method. The total sample was Rothstein (2003) states that the weakness of involved in this study is 178 countries. This corrupt institutions can raise the problem of study used secondary data, namely environmental degradation. Fredriksson published Environmental Performance and Svensson (2003) put forward a Index (EPI) by The Yale Centre for theoretical model, that quality the Environmental Law & Policy and World environment is negatively affected by Governance Index (WGI) published by the corruption and political instability. It World Bank. The sources data were implies that the higher the corruption that obtained from official publications. Classic occurs, the smaller the national assumption test and correlation analysis environmental performance will be. Welsch were conducted in this study. Variable (2004) argues that corruption harms the measurement presented as follows environmental quality, and if developing

Table 1. Variable Measurement Variable Dimension and elements Measure Environmental Environmental Health Environmental Performance ▪ Health impacts Performance Index (EPI) ▪ Air quality Score ▪ Water and Sanitation

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The vitality of the Ecosystem: ▪ Water resources ▪ Agriculture ▪ Forest ▪ fisheries ▪ biodiversity and ▪ habitat ▪ climate and energy Accountability ▪ World Governance Index ▪ Transparency (WGI) ▪ Political rights Political Stability ▪ Stability of government World Governance Index ▪ The intensity of an internal conflict (WGI) Government ▪ Quality of bureaucracy World Governance Index Effectiveness ▪ Infrastructure Quality (WGI) ▪ Public satisfaction Regulation Quality ▪ The burden of government World Governance Index regulation (WGI) ▪ Practice competition is unfair ▪ Freedom to invest Control of Corruption ▪ Corruption of the apparatus World Governance Index government (WGI) ▪ Public trust against politicians

Results study, the normality test was used is One- Sample Kolmogorov-Smirnov Test data with SPSS statistical tools. Research data Data Normality Test are categorized as data that are normally Normality Test is a statistical test to distributed, if, from the test results, ensure that the sample is from the normality test, it shows that the significance population that is normally distributed. A value (Test Statistic) is higher (>) than 0.05. good correlation or regression test is a test The output of the normality test data that the data samples are normally presented in Table 2 indicates that all data distributed. Normality test shows that the variables come from samples that are sample distribution is not leaning on one normally distributed. It was indicated with part of the population group; it will but all the significance values > 0.05. evenly represents the population. In this Therefore, it implies that the data represents the population.

Table 2. Data Normality test Results

Variable Significance Kolmogorov Critical Data Distribution Smirnov value Conclusions Corruption control 0.132 0.05 Normal Governance 0.072 0.05 Normal effectiveness Political stability 0.063 0.05 Normal Quality of 0.072 0.05 Normal regulation Accountability 0.70 0.05 Normal Environmental 0.052 0.05 Normal performance

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Multicollinearity Test Independent variables is indicated no multicollinearity if tolerance value > 0.10 Multicollinearity test is a classic or a Variance Inflation Factor < 10.00. The assumption test to identify a significant output of multicollinearity test indicates correlation between independent that there is one independent variable variables. A good linear model requires (governance effectiveness) is affected by that inter-independent variables need to be multicollinearity. free of mutual influence or correlation.

Table 3. Test results Multicollinearity

Variable Variance Inflation Critical Conclusion of Factor value Multicollinearity Corruption control 6.715 10 No Governance 10.502 10 Yes effectiveness Political stability 2.635 10 No Quality of regulation 7.887 10 No Accountability 2.962 10 No Environmental 6.715 10 No performance

The consequence of the Heteroskedasticity in this study used occurrence of multicollinearity is that the Glejser test. The output of variables were dropped from the heteroskedasticity test is presented in analysis. Table 4. Residual value or data is not contained heteroskedasticity when the value of significance (Sig.) > 0.05. The Heteroskedasticity Test results show that all variables indicate that Heteroskedasticity test is a classic the residual value > 0.05. Therefore, it assumption test to ensure that there is no implies that there is no Heteroskedasticity difference variant from each variable. Test in the data used in this study. Table 4. Heteroskedasticity test

Variable Significance value Critical Heteroskedastisity value Corruption control 0.709 0.05 No Governance effectiveness 0.394 0.05 No Political stability 0.989 0.05 No Quality of regulation 0.071 0.05 No Accountability 0.979 0.05 No Environmental 0.709 0.05 No performance

Correlation Analysis Results used to identify the relationships between independent variables or independent Correlation analysis is an analysis variables and dependent variables. In this to identify relationships between the study, the correlation analysis is intended variables. The correlation analysis can be to know the relationship between

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Journal of Accounting Auditing and Business - Vol.2, No.2, 2019 10.24198/jaab.v2i2.22585 dependent variables and independent Based on the Pearson correlation variables. After considering output in Table 5, it indicates that control multicollinearity testing, independent of corruption, political stability, and variables in the study were corruption regulatory quality is positively and control, political stability, regulatory significantly associated with national quality, and accountability. Variable, environmental performance. independent governance effectiveness in Nevertheless, accountability does not this study removed from the analysis indicate a significant correlation with because there has been multicollinearity. national environmental performance. In this study, the correlation analysis was used is the Pearson correlation test. Table 5. Correlation test

Dependent Environmental performance Variable Coefficient Conclusion Pearson (R) Correlation Independent correlation Varibale Corruption control 0.230** Significant Political stability 0.167* Significant Quality of regulation 0.193** Significant Accountability 0.102 Not Significant **. p< 0.01 (1-tailed). *. P<0.05 (1-tailed).

Conclusion to increase its environmental performance, the governance of the country must be Based on the results of the statistical corrected. analysis shows that governance attributes, including corruption control, political stability, regulatory quality, are positively Refferences and significantly correlated with national Álvarez, Isabel Gallego., Galindo, environmental performance. Nevertheless, Purificación Vicente., Villardón, for the accountability attribute indicates Purificación Galindoand Rosa, there is a significant correlation with Miguel Rodríguez. 2014. environmental performance. It implies that Environmental Performance in national environmental performance is Countries Worldwide:Determinant associated with a governance attribute that Factors and Multivariate Analysis. has a direct relationship. Corruption Sustainability control, political stability, and regulatory quality are attributes that are believed to Breaban & Sandu. Using Environmental have a direct relationship with national performance Index To assess environmental performance. However, Regional Resilience In Romania. when it is identified from the magnitude of 2013. Conference Paper. the correlation coefficient, it indicates a Bran, Lorina., Radulescu, Carmen relationship that is not quite strong. Overall, Valentina., Ioan, Ildiko. 2011. the attribute of public governance is to have Measures of Environmental a relationship with national environmental Performance. Review of performance. Therefore, if a country wants

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