Corruption and Development: A Test for Non-Linearities

Economics of Governance, 2009

The relationship between corruption and economic development is char-acterised by three stylised facts: (i) a strong negative correlation between corruption and development (ii) countries can remain trapped in high corruption-low develop-ment or low corruption-high ...

2001

This paper investigates and explains the cross-country pattern in the 1999 corruption index from Transparency International. The economic part of the model has four variables: the level and growth of real income per capita, the inflation rate, and the economic freedom index. The economic transition from poor to rich strongly reduces corruption, while periods of high inflation increase corruption. The cultural part of the model uses a set of dummies for “cultural areas”, and the Gastil index for democracy. Both parts offer satisfactory explanations and interact. However, the (relative) difference between GDP levels within the same cultural area is smaller than the (relative) difference between levels of corruption. The interaction therefore points to something different from culture: the inherent seesaw dynamics of corruption.

We report quantitative relations between corruption level and economic factors, such as country wealth and foreign investment per capita, which are characterized by a power law spanning multiple scales of wealth and investment per capita. These relations hold for diverse countries, and also remain stable over different time periods. We also observe a negative correlation between level of corruption and longterm economic growth. We find similar results for two independent indices of corruption, suggesting that the relation between corruption and wealth does not depend on the specific measure of corruption. The functional relations we report have implications when assessing the relative level of corruption for two countries with comparable wealth, and for quantifying the impact of corruption on economic growth and foreign investment. PACS. 89.90.+n Other topics in areas of applied and interdisciplinary physics -05.45.Tp Time series analysis -05.40.Fb Random walks and Levy flights

Corruption takes place when public officials break the law in pursuit of their private interest. But public officials can break different laws in different ways with different implications for the public good. The factors driving corruption and the effects of corruption can therefore vary widely. Understanding the causes and consequences of corruption is particularly important in developing countries, which almost without exception suffer from high levels of corruption. The virtual uniformity of this evidence strongly suggests that developing countries must share some powerful common drivers of corruption that are different from those that affect advanced industrial countries. At the same time, the very diverse economic performance of developing countries suggests that not all developing countries suffer from the same types of corruption. These two observations, summarized in our first section, provide the backdrop to my analytical investigation. I begin this investigation by identifying the drivers of corruption implicit in most conventional neoclassical economic analysis of the topic. Although these drivers are undoubtedly important in many contexts, I next argue that a number of other drivers of corruption may be more important in developing countries. These countries have several critical structural features that are recognized in the broader social science literature but the implications of these features for the economic analysis of corruption have not been adequately developed. We argue that the types of corruption generated by these structural features of developing countries are much less amenable to the types of anti-corruption measures that are prescribed by the conventional analysis of corruption. I then use this analysis to provide an alternative classification of types of corruption in developing countries and suggest that policy has to be appropriate to the drivers of corruption most relevant in particular countries. The implications of this analysis for anti-corruption strategies in developing countries are discussed in the final section.

2014

Corruption is a major cause and result of poverty around the globe. It arises at all levels of society, from national governments and military to small businesses and sports. Corruption affects all elements of society in some way as it undermines democracy and economic growth as well as the environment and people’s health.The main purpose of this thesis is to examine if corruption has a significant effect on economic growth in developing countries. The empirical analysis is conducted with a regression analysis, using data from recognized institutions. Other variables that can affect GDP per capita growth are also examined such as the level of democracy, fertility rate, life expectancy, education and the Initial GDP per capita to test for conditional convergence. In our main model, the empirical results show that corruption does not have a significant effect on economic growth but this is basically due to that the model exhibits multicollinearity. In our second model, where we omitte...

isara solutions, 2017

Corruption is a widespread phenomenon affecting all societies to different degrees, at different times and it is considered as major obstacle in economic development. This paper studies the empirical literature on the sources of corruption. Due to data availability for the OECD countries I am able to produce cross-country econometric model to test hypothesis of corruption determinants. This study takes into consideration various determinants of corruption for 32 countries using panel data for the period 2010 to 2014. In examining various hypothesis this study attempts to answer whether first corruption is lower in countries with higher economic growth rate or not. The second hypothesis is whether schooling (education) has any impact on corruption or not? Third is whether a county in which unemployment is more also has more corruption. Fourth is to find out the relation between trade openness and corruption. Fifth is political instability leads to more corruption in country or not. Sixth is whether strong governance indicators (voice and accountability, government effectiveness, regulatory quality, rule of law) lead to less corruption in a country or not?

2003

Economic development and bureaucratic corruption are determined jointly in a dynamic general equilibrium model of growth, bribery and tax evasion. Corruption arises from the incentives of public and private agents to conspire in the concealment of information from the government. These incentives depend on aggregate economic activity which, in turn, depends on the incidence of corruption. The model produces multiple development regimes, transition between which may or may not occur. In accordance with recent empirical evidence, the relationship between corruption and development is predicted to be negative. 1

Purpose – Is globalization instrumental in fighting corruption? Do wealth effects matter in this fight? Are findings valid when linearity assumptions are dropped? This paper assesses the Lalountas et al. (2011) hypotheses (conclusions) in the African context. Design/methodology/approach – Though not in form, yet in substance the intuition and motivation are compatible with those of Lalountas et al. (2011). Four hypotheses are tested from different methodological and contextual standpoints. In the analysis, while the economic and social dimensions of globalization are reflected in the HDI, the political dimension is captured by good governance indicators. A TSLS-IV estimation technique is applied where-in globalization instruments of trade and financial liberalization are instrumented on human-development and government-quality to account for corruption (corruption-control) effects. Thus the intuition is assessing how globalization is instrumental in the fight against corruption through human development (economic and social dimensions) and government quality (political dimension). Findings – Hypothesis 1: Globalization is a powerful tool in fighting corruption (True). Hypothesis 2: Globalization is an important tool in fighting corruption only in Middle and High income countries (Partially True). Hypothesis 3: For Low income countries globalization has no significant impact on corruption (True). Hypothesis 4: Hypotheses 1 and 2 are valid only under linearity (False). Social Implications – In countries with high levels of per capita, emphasis is placed on the political and social dimensions of globalization and as a result the effects of this phenomenon on corruption-control are significant. Conversely, in nations with low levels of per capita income, emphasis is given to the economic dimension of international integration and as a result the effect of globalization on corruption is limited. As a policy implication, persistent globalization as an effective means to reduce corruption in developing countries might lead to inappropriate policies in low income countries. Originality/value – This paper has tested the Lalountas et al. (2011) hypotheses in the continent where concerns of globalization, human development and corruption are most acute.

European Journal of Political Economy, 2021

The paper analyzes the strong but complex relation between corruption and development. The corruption/honesty index is explained by three variables measuring aspects of development: Income, Polity and Fraser (for Economic Freedom). The last two indices represent the political and the economic system. Two problems arise: (i) Development is a common factor in all four variables, giving the variables strong confluence, so it is difficult to sort out the contribution of each explanatory variable. However, kernel regressions on the corruption/income scatter give a well-defined long-run transition path, which permits an identification of the specific contributions of institutions to corruption. (ii) The correlation of corruption to the first difference of the three development variables is negative. This gives a substantial lag in the corruption/income relation in the form of wide J-curves, but the main direction of causality is still from development to corruption. High income and modern institutions cause low corruption after some time. The corruption/development-relation is a fuzzy but strong long-run connection.

Corvinus Journal of Sociology and Social Policy, 2018

The present study investigates relevant economic, social and political dimensions of development worldwide, focusing on (apparent and latent) links between perceived corruption, economic and human development, government effectiveness and the quality of the political system taken as representative variables of countries' social systems. These variables were selected as the basic determinants of the level of overall development in a country, since combinations of these factors determine clusters of countries with different development patterns. The results of this study indicate that effective development policies require integrated strategies that incorporate efforts to reduce corruption and increase human development and government effectiveness. These strategies are sustainable in the long run when associated with institutional transformations. More specifically, if democracy is not consolidated and the political system is not grounded on the basis of freedom, socioeconomic development cannot be achieved and maintained in the long term, even with a high level of per-capita income.

Journal of Economic Literature, 1997

2018

The purpose of this paper is to empirically investigate the impact of globalization on corruption level of an economy in an unbalanced panel data analysis for 34 OECD countries for the period 2002-2012. For this purpose, we used two distinct corruption variables as dependent variable and four separate globalization variables (i.e., social, economic, political and over all globalization indexes) from the existing globalization and corruption literature. We also included four more control variables, including trade openness level, poverty level, inflation rate and FDI inflows in order to check the robustness of our findings. In this regard, the empirical estimation results of fixed time effect models depict that all globalization indicators (excluding political globalization indicator) have statistically significant and negative effect on corruption level in OECD countries and this result keeps its validity across two different corruption indicators. In addition to this main finding, it has been seen that an increase in trade openness and poverty level is related to an increase in corruption level while inflation rate and foreign direct investment inflows are negatively associated with corruption level.

2016

Corruption, which is defined as "the abuse of public power for private gain", is considered as a global problem faced by all the countries in the world, notwithstanding that it is more common in developing countries that need to fight. The factors affecting corruption have to be defined in order to design policies aiming to control or reduce corruption. Accordingly, the purpose of this study is to estimate economic and political factors affecting corruption in developing countries. In this study, using the fixed effects model with Driscoll-Kraay standard error, the data of 56 countries for the period of 2002-2012 is considered. According to the results of the analysis, in terms of economic factors of the countries covered; while the economic growth, economic freedom and trade openness reduce corruption, inflation promotes corruption. Additionally, democracy and political stability are determined as the political factors having a reducing effect on the corruption.

Review of Development Economics, 2012

Most people today would argue that corruption is bad for countries' economic development. Yet, we still lack a reliable empirical estimate of the effect. This study addresses the econometric shortcomings of the literature and provides an estimate of the causal impact of corruption on gross domestic product per capita across countries. Certain dimensions of a country's culture are used as instruments for corruption. These instruments stay strong when the other deep determinants of economic development, geography, and the remaining dimensions of institutions and culture are controlled for. In the process of choosing controls, however, the entire set of variables available in the Quality of Governance online database (QOG) that includes all central variables from the literature on institutions and culture are included. It is found that corruption does exert a significant and negative impact on countries' productivity levels.