ASSESSMENT OF THE IMPACT OF PERCEIVED CORRUPTION ON ECONOMIC GROWTH USING THE GLS MODEL
DOI:
https://doi.org/10.7251/ACE2441091KKeywords:
corruption, economic growth, gross domestic product, institutions, governanceAbstract
Researchers not only dissent on what effect corruption has on economic growth but also whether this effect holds in different institutional contexts. Some economists argue that corruption can stimulate economic growth in environments with poor governance and ineffective institutions (such as those in the Western Balkans region), while others suggest otherwise. This paper aims to investigate the relationship between perceived corruption and GDP per capita change in ten European countries from 2012 to 2021. Our goal is to examine whether non-EU Western Balkans countries, characterised by ineffective governance and underdeveloped institutions, are more or less sensitive to corruption compared to more developed European countries. To obtain robust estimates, we employ a feasible generalised least squares estimation method (GLS). Besides showing a negative effect on the full sample, our analysis confirms different intensities of corruption impact on economic growth under the two governance regimes. The research suggests that the negative effect of corruption is stronger in countries with developed institutions (EU countries). We find that the impact of corruption on economic growth in such countries amounts to up to 1.94 percent drop in GDP per capita after a one-unit rise in corruption level, while the one in non-EU WB countries stands at a maximum of 0.75 percent decrease. Compared to earlier findings, ours are characterised by the focus on Western Balkans countries, the inclusion of more recent data and a more comprehensive pre-estimation analysis.
References
Agale-Kolgo, D. (2018). The impact of corruption on economic growth in developing countries (Publication No. 44870) [Doctoral dissertation, Erasmus University]. Erasmus University Thesis Repository.
Aidt, T., Dutta, J., & Sena, V. (2008). Governance regimes, corruption and growth: Theory and evidence. Journal of Comparative Economics, 36(2), 195–220. https://doi.org/10.1016/j.jce.2007.11.004
AlQudah, A., Zouaoui, A., & AboElsoud, M. (2020). Does Corruption Adversely Affect Economic Growth in Tunisia? ARDL approach. Journal of Money Laundering, 23(1), 38–54. https://buescholar.bue.edu.eg/econ/2
Ang, Y. Y. (2020). China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption. Cambridge University Press.
Bach, A. S., Løkke Møller, A. K., & Villadsen, A. R. (2021). Perceived Red Tape and Recruitment and Selection Practices in the Public Sector. Academy of Management Proceedings, 2021(1), 11329. https://doi.org/10.5465/AMBPP.2021.
abstract
Barro, R. (1989). Economic Growth in a Cross-Section of Countries. NBER Working Paper 3120. https://doi.org/10.2307/2937943
Bayley, D. H. (1966). The Effects of Corruption in a Developing Nation. Western Political Quarterly, 19(4), 719-732. https://doi.org/10.1177/106591296601900410
Beck, P. J., & Maher, M. W. (1986). A comparison of bribery and bidding in thin markets. Economics Letters, 20(1), 1-5. https://doi.org/10.1016/0165-1765(86)90068-6
Bellé, N., & Cantarelli, P. (2017). What Causes Unethical Behavior? A Meta-analysis to Set an Agenda for Public Administration Research. Public Administration Review, 77(3), 327-339. https://doi.org/10.1111/puar.12714
Bozeman, B. (1993). A Theory of Government Red Tape. Journal of Public Administration Research and Theory, 3(3), 273-303, https://www.jstor.org/stable/1181785
Brewer, G. A., & Walker, R. (2010). The Impact of Red Tape on Governmental Performance: An Empirical Analysis. Journal of Public Administration Research and Theory, 20(1), 233–257, http://dx.doi.org/10.1093/jopart/mun040
Brunetti, A., & Weder, B. (1998). Investment and institutional uncertainty: A comparative study of different uncertainty measures. Weltwirtschaftliches Archiv, 134(3), 513–533. https://doi.org/10.1007/BF02707928
Buchanan, B. (1975). Red Tape And The Service Ethic: Some Unexpected Differences Between Public and Private Managers. Administration & Society, 6(4), 423-444, https://doi.org/10.1177%2F009539977500600403
Chang, C.-P., & Hao, Y. (2017). Environmental performance, corruption and economic growth: Global evidence using a new data set. Applied Economics, 49(5), 498–514. https://doi.org/10.1080/00036846.2016.1200186
Cieślik, A., & Goczek, Ł. (2018). Corruption, Privatisation and Economic Growth in Post- communist Countries. Europe-Asia Studies, 70(8), 1303–1325. https://doi.org/10.1080/09668136.2018.1511771
Cooke, D.K., Brant, K.K., & Woods, J.M. (2019). The Role of Public Service Motivation in Employee Work Engagement: A Test of the Job Demands – Resources Model. International Journal of Public Administration, 42(9), 765-775, https://doi.org/10.1080/01900692.2018.1517265
Čudanov, M., Jovanović, P., & Jaško, O. (2018) Influence of the Public Procurement Procedure Type on the Duration of Public Procurement. Lex Localis – Journal of Local Self-Government, 16(2), 361–378, https://doi.org/10.4335/16.2.361-378(2018)
Cuervo-Cazurra, A. (2015). Corruption. Wiley Encyclopedia of Management, 6, 1–3. https://doi.org/10.1002/97811 18785317.weom060041
d’Agostino, G., Dunne, J. P., & Pieroni, L. (2016). Corruption and growth in Africa. European Journal of Political Economy, 43, 71–88. https://doi.org/10.1016/j.ejpoleco.2016.03.002
Gräbner, C. & Ghorbani, A. (2019). Defining institutions - A review and a synthesis. ICAE Working Paper Series, No. 89. Johannes Kepler University Linz, Institute for Comprehensive Analysis of the Economy (ICAE), Linz.
Gründler, K., & Potrafke, N. (2019). Corruption and economic growth: New empirical evidence. European Journal of Political Economy, 60, 101810. https://doi.org/10.1016/j.ejpoleco.2019.08.001
Hamilton, A. & Hammer, C. (2018). Can We Measure the Power of the Grabbing Hand? A Comparative Analysis of Different Indicators of Corruption. World Bank Policy Research Paper No. 8299.
Hodge, A., Shankar, S., Rao, D. S. P., & Duhs, A. (2011). Exploring the Links Between Corruption and Growth: Corruption and growth. Review of Development Economics, 15(3), 474–490. https://doi.org/10.1111/j.1467-9361.2011.00621.x
Huang, C.-J. (2016). Is corruption bad for economic growth? Evidence from Asia-Pacific countries. The North American Journal of Economics and Finance, 35, 247–256. https://doi.org/10.1016/j.najef.2015.10.013
Huntington, S.P. (1968). Political order in changing societies. Yale University Press.
IMF (2024). Investment and Capital Stock Dataset. https://data.imf.org/?sk=1ce8a55f-cfa7-4bc0-bce2-256ee65ac0e4&sid=1390030341854
Johnson, N. D., LaFountain, C. L., & Yamarik, S. (2011). Corruption is bad for growth (even in the United States). Public Choice, 147(3), 377–393. https://doi.org/10.1007/s11127- 010-9634-5
Jovanović, P., Ivanović, T., Maričić, M., & Ivančević, S. (2022). Public Procurement Employees’ Perception on Legal Changes, Perceived Red Tape and Job Stress: Evidence from Serbia. Inzinerine Ekonomika-Engineering Economics, 33(5), 507–520. http://dx.doi.org/10.5755/j01.ee.33.5.29934
Lambsdorff, J. G., & Teksoz, S. U. (2004). Corrupt relational contracting. In J. G. Lambsdorff, M., Taube, & M. Schramm (Eds.), The New Institutional Economics of Corruption (pp. 152–165). Routledge.
Leys, C. (1965). What is The Problem about Corruption? The Journal of Modern African Studies, 3(2), 215–230. https://doi.org/10.1017/S0022278X00023636
Lien, D. H. D. (1986). A note on competitive bribery games. Economics Letters, 22(4), 337-341. https://doi.org/10.1016/0165-1765(86)90093-5
Lui, F.T. (1985). An equilibrium queuing model of bribery. Journal of Political Economy, 93, 760–781. https://doi.org/10.1086/261329
Mankiw, N.G., Romer D., & Weil D.N. (1992). A Contribution to the Empirics of Economic Growth. The Quarterly Journal of Economics, 107(2), 407–437. https://doi.org/10.2307/2118477
Mauro, P. (1995). Corruption and growth. The Quarterly Journal of Economics, 110(3), 681–712. https://doi.org/10.2307/2946696
Menard S. (2001). Applied Logistic Regression Analysis. SAGE Publications, Inc.
Mendez, F., & Sepulveda, F. (2006). Corruption, growth and political regimes: Cross country evidence. European Journal of Political Economy, 22(1), 82–98. https://doi.org/10.1016/j.ejpoleco.2005.04.005
Meon, P.G., & Sekkat, K. (2005). Does corruption grease or sand the wheels of growth?, Public Choice, 122, 69–97. https://doi.org/10.1007/s11127-005-3988-0
Mo, P. H. (2001). Corruption and Economic Growth. Journal of Comparative Economics, 29(1), 66–79. https://doi.org/10.1006/jcec.2000.1703
Nwabuzor, A. (2005). Corruption and development: New initiatives in economic openness and strengthened rule of law. Journal of Business Ethics, 59(1), 121–138. https://doi.org/10.1007/s10551-005-3402-3
Nye, N.S. (1967). Corruption and political development: A cost-benefit analysis. American Political Science Review, 61, 417–427. https://doi.org/10.2307/1953254
Polinsky, A. M., & Shavell, S. (1992). Enforcement costs and the optimal magnitude and probability of fines. The Journal of Law and Economics, 35(1), 133–148. https:// doi.org/10.1086/467247
Rose-Ackerman, S. (1978). Corruption: A study in political economy. Academic Press.
Sakib, N.H. (2020). Institutional Isomorphism. In: A. Farazmand (Eds), Global Encyclopedia of Public Administration, Public Policy, and Governance (pp. 1–7), Springer, Cham. https://doi.org/10.1007/978-3-319-31816-5_3932-1.
Shleifer, A., & Vishny, R. W. (1993). Corruption. The Quarterly Journal of Economics, 108(3), 599–617. https://doi.org/10.2307/2118402
Solow, R. M. (1956). A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics, 70(1), 65–94. https://doi.org/10.2307/1884513
Spyromitros, E., & Panagiotidis, M., (2022). The impact of corruption on economic growth in developing countries and a comparative analysis of corruption measurement indicators. Cogent Economics & Finance, 10(1), 1-30. https://doi.org/10.1080/23322039.2022.2129368
Summers, L. (1977). Speech to the summit of eight. Denver.
Swaleheen, M. (2011). Economic growth with endogenous corruption: An empirical study. Public Choice, 146(1–2), 23–41. https://doi.org/10.1007/s11127-009-9581-1
Tanzi, V., & Davoodi, H. (1998). Corruption, public investment, and growth. In H. Shibata, & T. Ihori (Eds), The welfare state, public investment, and growth, (pp. 41–60). Springer. https://doi.org/10.1007/978-4-431-67939-4_4
Trabelsi, M. A. (2023). The Impact of Corruption on Economic Growth: A Nonlinear Evidence. IntechOpen. https://doi.org/10.5772/intechopen.108876
Transparency International (2024). Corruption Perceptions Index. https://www.transparency.org/en/cpi/2023?gad_source=1&gclid=CjwKCAjwx4O4BhAnEiwA42SbVBFIaKYM56Pr-zhSmSnDSu37VLsJ-QDSDZu9ccgnasgskEwYu2f0XxoCYR0QAvD_BwE
Troisi, R., & Alfano, G. (2023) Proximity and inter‑firm corruption: A transaction cost approach. Small Business Economy, 60, 1105–1120. https://doi.org/10.1007/s11187-022-00649-y
Tsanana, E., Chapsa, X., & Katrakilidis, C. (2016). Is growth corrupted or bureaucratic? Panel evidence from the enlarged EU. Applied Economics, 48(33), 3131–3147. https://doi.org/10.1080/00036846.2015.1136395
Von Lampe, K. (2008). Organized crime in Europe: Conceptions and realities. Policing: A Journal of Policy and Practice, 2(1), 7–17. https://doi.org/10.1093/police/ pan015
United Nations Development Programme (2024). Human Development Insights. https://hdr.undp.org/data-center/country-insights#/ranks
World Economic Journal (2024). The Cost of Corruption. https://world-economic.com/the-cost-of-corruption.html
Williamson, O. E. (2008). Outsourcing: Transaction cost economics and supply chain management. Journal of Supply Chain Management, 44(2), 5–16. https://doi.org/ 10.1111/j.1745-493X.2008.00051.x
World Bank (2024a). World Bank Development Indicators. https://databank.worldbank.org/source/world-development-indicators
World Bank (2024b). World Bank Governance Indicators. https://www.worldbank.org/en/publication/worldwide-governance-indicators
Downloads
Published
Issue
Section
License
Copyright (c) 2024 Acta Economica

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.