Corruption and Economic Growth in ASEAN Member Countries

Anisah Alfada

Abstract

This study examines the effect of corruption on economic growth and determines the corruption threshold in nine ASEAN member countries in 1999–2016. This study assesses whether the effect of corruption is growth-enhancing or growth-deteriorating in different corruption threhsolds using a sample-splitting and threshold model. In contrast to the existing literature, this study does not group countries based on income level and therefore can reveal the corruption level of a country relative to a corruption threshold. The estimation results show that the adverse effect of corruption on economic growth is stronger for countries with corruption levels above the second threshold of 80.

Keywords

corruption; economic growth; threshold model; ASEAN

Full Text:

PDF

References

Abe, M., 2018. Corruption eats away at Asia-Pacific growth. Asia Global Institute. Retrieve from https://www.asiaglobalonline.hku.hk/corruption-asia-pacific-growth.

Aghion, P., Alesina, A. and Trebbi, F., 2004. Endogenous political institutions. The Quarterly Journal of Economics, 119(2), pp.565-611. doi: https://doi.org/10.1162/0033553041382148.

Ahmad, E., Ullah, M.A. and Arfeen, M.I., 2012. Does corruption affect economic growth?. Latin American Journal of Economics, 49(2), pp.277-305. doi: http://dx.doi.org/1O.7764/LAJE.49.2.277.

Aidt, T.S., 2003. Economic analysis of corruption: A survey. The Economic Journal, 113(491), pp.F632-F652.

Aidt, T.S., 2009. Corruption, institutions, and economic development. Oxford Review of Economic Policy, 25(2), pp.271-291.

Aidt, T., Dutta, J. and Sena, V., 2008. Governance regimes, corruption and growth: Theory and evidence. Journal of Comparative Economics, 36(2), pp.195-220. doi: https://doi.org/10.1016/j.jce.2007.11.004.

Ardra, U. and Martawardaya, B., 2018. Tourism and economic development in ASEAN 1998-2013. Economics and Finance in Indonesia, 63(2), pp.114-125. doi: http://dx.doi.org/10.7454/efi.v63i2.571.

Awdeh, A. and Hamadi, H., 2019. Factors hindering economic development: evidence from the MENA countries. International Journal of Emerging Markets, 14(2), pp.281-299. doi: https://doi.org/10.1108/IJoEM-12-2017-0555.

Berry, W.D., Golder, M. and Milton, D., 2012. Improving tests of theories positing interaction. The Journal of Politics, 74(3), pp.653-671. doi: https://doi.org/10.1017/S0022381612000199.

Blackburn, K., Bose, N. and Haque, M.E., 2006. The incidence and persistence of corruption in economic development. Journal of Economic Dynamics and Control, 30(12), pp.2447-2467. doi: https://doi.org/10.1016/j.jedc.2005.07.007.

Bose, N., Capasso, S. and Murshid, A.P., 2008. Threshold effects of corruption: theory and evidence. World Development, 36(7), pp.1173-1191. doi: https://doi.org/10.1016/j.worlddev.2007.06.022.

Brambor, T., Clark, W.R. and Golder, M., 2006. Understanding interaction models: Improving empirical analyses. Political Analysis, 14(1), pp.63-82. doi: https://doi.org/10.1093/pan/mpi014.

Caner, M., and Hansen, B.E., 2004. Instrumental variable estimation of a threshold model. Econometric Theory, 20(5), pp.813–843. doi: https://doi.org/10.1017/S0266466604205011.

Cohen, D. and Soto, M., 2007. Growth and human capital: good data, good results. Journal of Economic Growth, 12(1), pp.51-76. doi: https://doi.org/10.1007/s10887-007-9011-5.

Colombatto, E., 2003. Why is corruption tolerated?. The Review of Austrian Economics, 16(4), pp.363-379. doi: https://doi.org/10.1023/A:1027349206371.

d’Agostino, G., Dunne, J.P. and Pieroni, L., 2016. Government spending, corruption and economic growth. World Development, 84, pp.190–205. doi: https://doi.org/10.1016/j.worlddev.2016.03.011.

Devarajan, S., Swaroop, V. and Zou, H.F., 1996. The composition of public expenditure and economic growth. Journal of Monetary Economics, 37(2), pp.313-344. doi: https://doi.org/10.1016/S0304-3932(96)90039-2.

Durlauf, S.N. and Johnson, P.A., 1995. Multiple regimes and cross-country growth behaviour. Journal of Applied Econometrics, 10(4), pp.365-384. doi: https://doi.org/10.1002/jae.3950100404.

Dzhumashev, R., 2009. Is there a direct effect of corruption on growth?. MPRA Paper No.18489. Munich Personal RePEc Archive. Retrieved from https://mpra.ub.uni-muenchen.de/18489/.

Dzhumashev, R., 2014a. Corruption and growth: The role of governance, public spending, and economic development. Economic Modelling, 37, pp.202-215. doi: https://doi.org/10.1016/j.econmod.2013.11.007.

Dzhumashev, R., 2014b. The two-way relationship between government spending and corruption and its effects on economic growth. Contemporary Economic Policy, 32(2), pp.403-419. doi: https://doi.org/10.1111/coep.12025.

Easterly, W. and Levine, R., 1997. Africa’s growth tragedy: policies and ethnic divisions. The Quarterly Journal of Economics, 112(4), pp.1203-1250. doi: https://doi.org/10.1162/003355300555466.

Eicher, T.S. and Leukert, A., 2009. Institutions and economic performance: Endogeneity and parameter heterogeneity. Journal of Money, Credit and Banking, 41(1), pp.197-219. doi: https://doi.org/10.1111/j.1538-4616.2008.00193.x.

Fisman, R. and Gatti, R., 2002. Decentralization and corruption: evidence across countries. Journal of Public Economics, 83(3), pp.325-345. doi: https://doi.org/10.1016/S0047-2727(00)00158-4.

Gupta, S., Davoodi, H. and Alonso-Terme, R., 2002. Does corruption affect income inequality and poverty?. Economics of Governance, 3(1), pp.23-45. doi: https://doi.org/10.1007/s101010100039.

Guriev, S., 2004. Red tape and corruption. Journal of Development Economics, 73(2), pp.489-504. doi: https://doi.org/10.1016/j.jdeveco.2003.06.001.

Hansen, B.E., 2000. Sample splitting and threshold estimation. Econometrica, 68(3), pp.575-603. doi: https://doi.org/10.1111/1468-0262.00124.

Haque, M.E. and Kneller, R., 2009. Corruption clubs: endogenous thresholds in corruption and development. Economics of Governance, 10(4), pp.345-373. doi: https://doi.org/10.1007/s10101-009-0064-0.

Huang, C.J., 2016. Is corruption bad for economic growth? Evidence from Asia-Pacific countries. The North American Journal of Economics and Finance, 35, pp.247-256. doi: https://doi.org/10.1016/j.najef.2015.10.013.

Karim, B.A., Karim, Z.A. and Nasharuddin, M.N., 2018. Corruption and Foreign Direct Investment (FDI) in ASEAN-5: A panel evidence. Economics and Finance in Indonesia, 64(2), pp.145-156. doi: http://dx.doi.org/10.7454/efi.v64i2.594.

Kato, A. and Sato, T., 2015. Greasing the wheels? The effect of corruption in regulated manufacturing sectors of India. Canadian Journal of Development Studies/Revue canadienne d’études du développement, 36(4), pp.459-483. doi: https://doi.org/10.1080/02255189.2015.1026312.

Kaufmann, D., and Wei, S.J., 1999. Does “grease money” speed up the wheels of commerce?. Policy Research Working Paper No. WPS 2254. Washington, DC: World Bank. Retrieved from http://documents.worldbank.org/curated/en/189751468739475975/Does-grease-money-speed-up-the-wheels-of-commerce.

Keefer, P. and Knack, S. 2000. Polarization, politics, and property rights. Public Choice, 111(1-2), pp.127–154. doi: https://doi.org/10.1023/A:1015168000336.

Lucic, D., Radišic, M. and Dobromirov, D., 2016. Causality between corruption and the level of GDP. Economic research-Ekonomska istraživanja, 29(1), pp.360-379. doi: https://doi.org/10.1080/1331677X.2016.1169701.

Mauro, P., 1995. Corruption and growth. The Quarterly Journal of Economics, 110(3), pp.681-712. doi: https://doi.org/10.2307/2946696.

Mauro, P., 1997. The effects of corruption on growth, investment, and government expenditure: A cross country analysis. In K.A. Elliott (Ed.), Corruption and the global economy, pp.83–107. Washington, DC: Institute for International Economics.

Mauro, P., 1998. Corruption and the composition of government expenditure. Journal of Public Economics, 69(2), pp.263-279. doi: https://doi.org/10.1016/S0047-2727(98)00025-5.

Méon, P.G. and Weill, L., 2010. Is corruption an efficient grease?. World Development, 38(3), pp.244-259. doi: https://doi.org/10.1016/j.worlddev.2009.06.004.

Paldam, M., 2002. The cross-country pattern of corruption: economics, culture and the seesaw dynamics. European Journal of Political Economy, 18(2), pp.215-240. doi: https://doi.org/10.1016/S0176-2680(02)00078-2.

Pellegrini, L. and Gerlagh, R., 2004. Corruption’s effect on growth and its transmission channels. Kyklos, 57(3), pp.429-456. doi: https://doi.org/10.1111/j.0023-5962.2004.00261.x.

Persson, T. and Tabellini, G.E., 2003. Do Electoral Cycles Differ Across Political Systems?. Working Papers 232. Innocenzo Gasparini Institute for Economic Research (IGIER), Bocconi University.

Persson, T., Tabellini, G. and Trebbi, F., 2003. Electoral rules and corruption. Journal of the European Economic Association, 1(4), pp.958-989. doi: https://doi.org/10.1162/154247603322493203.

Rock, M.T. and Bonnett, H., 2004. The comparative politics of corruption: accounting for the East Asian paradox in empirical studies of corruption, growth and investment. World Development, 32(6), pp.999-1017. doi: https://doi.org/10.1016/j.worlddev.2003.12.002.

Saddiq, S. and Abu Bakar, A., 2019. Impact of economic and financial crimes on economic growth in emerging and developing countries: A systematic review. Journal of Financial Crime, 26(3), pp. 910-920. doi: https://doi.org/10.1108/JFC-10-2018-0112.

Shleifer, A. and Vishny, R.W., 1993. Corruption. The Quarterly Journal of Economics, 108(3), pp.599-617. doi: https://doi.org/10.2307/2118402.

Tanzi, V. and Davoodi, H., 1998. Corruption, public investment, and growth. In Shibata H., Ihori T. (eds), The welfare state, public investment, and growth (pp. 41-60). Springer, Tokyo. doi: https://doi.org/10.1007/978-4-431-67939-4_4.

Trabelsi, M.A. and Trabelsi, H., 2014. At what level of corruption does economic growth decrease?. MPRA Working Paper No. 81279. Munich Personal RePEc Archive. Retrieved from https://mpra.ub.uni-muenchen.de/81279/.

Yusuf, S. and Nabeshima, K., 2009. Tiger economies under threat: a comparative analysis of Malaysia’s industrial prospects and policy options. The World Bank. doi: https://doi.org/10.1596/978-0-8213-7880-9.

Refbacks

  • There are currently no refbacks.