Multiple-input multiple-output (MIMO) communication systems attained much importance in recent times due to high degrees of freedom and better spectral efficiency. Implementation of multiple antennas expected to have low power consumption and low-budget radio frequency (RF) components which are prone to hardware impairments. Various mitigation schemes are used to overcome the impact of hardware impairments but unfortunately, these schemes are not perfect enough such that a certain amount of residual impairment always exists. Existence of multiple antennas on both the transmit and the receive side introduces channel correlation due to narrow spacing
between antenna elements. In this paper, we design a new system model for MIMO system by taking transmit RF impairments into account and consider it as an additional distortion during transmission. We further define a spatially correlated channel model to investigate the impact of channel correlations on system capacity. We compare an ideal system with an impaired system under uncorrelated and correlated channel environments. The capacity of MIMO system under correlated channels is more ffected by hardware impairments as compared to uncorrelated channels. We find that the impact of hardware impairments and channel correlations have different behavior at a specific range of SNR. Simulation results provide a significant insight of the system performance with variety of scenarios to achieve full advantage of multiple antenna systems in a realistic system environment.