Narrow Results

There is a fundamental conflict of interests between the ruler and most citizens in non-democracies. When the ruler maximizes his benefit from taxation, the major constraint is that citizens might make attempts to overthrow the existing regime. The continuity and stability of regime are crucially related to the degree of support to the existing political regime by the bureaucracy. In this paper, we use a simple model to argue that, when the ruler maximizes his benefit and faces exogenous restriction on wage setting, toleration of corruption is necessary to induce the required support and effort from the bureaucracy. We then relax the exogenous restriction on wages and study the case in which the ruler may eliminate corruption by setting efficiency wage. We also explore the possibility that the ruler may use an audit device to check corruption.

Recent studies in the innovation literature show that Foreign Direct Investment (FDI) enhances innovations in recipient countries through spill-over effects. In this paper we extend the existing literature by incorporating the corruption index in the estimation procedure. Using a cross-country analysis from the Europe and Central Asia (ECA) region, covering 57 countries over the period of 1995–2010, we find no evidence of FDI spill-over effects on innovations, when corruption is endogenously modelled in the regression. Interestingly, we find that corruption and expenditure on education sector are positively related to the number of patents applications, suggesting anti-corruption programs encourage innovations that promote economic growth. Our study shed light on the national innovations and anti-corruption programs.

In theory, trade intensity should positively affect the quality of domestic institutions and governance; the higher the economic openness, the lower the corruption. In practice, however, the growth of economic openness has not been accompanied by the expected improvements in corruption for 34 African countries between 1990 and 2009. This paper presents a plausible explanation for this conundrum. Results from panel data regression analyses indicate that a switch from trading with the Advanced Economies to trading with China increases the perceived corruption level. For instance, in a “representative” African country, a 10% point substitution from trading with the Advanced Economies to trading with China makes its ICRG corruption score decline—indicating increased corruption—by 29%.

This paper modeled the effect of corruption on growth, using Nigerian data for testing. The productivity growth channel of corruption was explored. Cointegration and error correction methods were employed in the analysis. The national system of innovations and corruption exhibited long run relations with productivity growth and were found to be credible fundamentals. The productivity growth vector was considered to be the only plausible in the long run growth analysis. The parsimonious growth equation showed productivity growth and government expenditure as significant and conformed to a priori expectations. The course of policy to sustainable growth was suggestive.

Employing annual data over the period 1996–2013 for 29 OECD countries, this paper explores the impact of corruption on domestic innovative activity, measured by the number of patent and trademark applications, via a linear panel fixed effect model and a nonlinear panel smooth transition regression with all lagged explanatory variables as instrumental variables and under the consideration of potential endogeneity biases. The results indicate several important findings. First, there exists a strong threshold effect between the control of corruption and levels of innovative activity across nations. Second, we note that corruption only has a substantial positive impact on innovation when it is over the threshold level, but not when a country has a seriously corrupt government with low bureaucratic quality, no matter for patent or trademark applications. Hence, heterogeneous beliefs about low transition speed show that OECD countries may not take actions instantly and identically to pursue better bureaucratic quality. Finally, we discover that an improvement over corruption presents greater impacts on patent applications than on trademark applications. Taken together, we confirm that corruption plays a fundamental role in determining innovation activities in OECD countries, offering meaningful policy implications for those policymakers and industries in accordance with our findings.

Using World Bank Enterprise Survey data on bribery and patent applications, we try to study the causal linkage between firm level innovation and corruption in India. Specifically, we try to understand if corruption impacts innovation at the firm level. Since we find that innovation and corruption are jointly determined, we propose instrumental variables regression approach to identify this causal effect. We instrument bribery by exogenously determined external audit parameter and then use a recursive bivariate probit model combined with industry-fixed effects to reach our results. Our findings suggest that bribery has an adverse impact on innovation. The results of our study are much in contrast to the existing literature, which largely supports a positive relationship between innovation and corruption.

The aim of this paper is to explore the relationship between intelligence and economic and financial crimes. For this purpose, we use a cross-sectional sample of 182 countries for the time span of 2012–2017. Our research provides empirical evidence on the existence of a significant impact of intelligence upon economic and financial crimes. When we analyze the entire sample, we find that intelligent people are more prone to comply with the law and thus increase the efficiency of implementing government policies to reduce economic and financial crimes. However, when we conduct our analysis among the two subgroups of high- and low-income countries, different results are obtained. For high-income countries, we obtain evidence of a positive coefficient for the impact of intelligence on economic and financial crimes, meaning that increased intellectual capacities of people from these countries, including high professional knowledge and skills, are used to break the traditional technology in order to get illegal benefits. Our results conducted for the low-income countries' subsample do not support intelligence as being a determining factor for economic and financial crimes; in these countries, other determinants are more important for engaging in such activities. Our study may have important implications for the policymakers who must acknowledge that various policies in the field of economic and financial crimes need to be differentially adopted depending on the level of development of each country, which offers different ways of involvement in such crimes, related to the level of people's intelligence.

We review the literature on foreign direct investment (FDI) and provide an empirical analysis of factors affecting FDI. Conjectures of the disparity of FDI between the coastal and western regions of China and policy recommendations are also made.

This paper examines causes and consequences of corruption within the process of economic development. Drawing on experiences and insights accumulated during the post-war period and reflected in a growing body of academic research, the paper analyzes institutional mechanisms that sustain corruption and the impact of corruption on development. It argues that many forms of corruption stem from the distributional attributes of the state in its role as the economy's central agent of resource allocation. It also addresses the question of what can be done about corruption and discusses the role of economic policies in developing incentives and institutions to reduce its incidence.

This paper re-studies the relationship between trade openness and environmental pollution. Through the theoretical framework, there is a non-uniform effect of trade openness on environmental pollution. Utilizing four alternative measures of trade openness as threshold variables, this paper examines the effect of trade openness on environmental pollution. We adopt a regression with nonlinearity, in which our nonlinear model includes two regressions — a threshold model and an interaction-term model. Utilizing four alternative measures of trade openness, our threshold test shows a single-threshold effect on pollutant emissions, implying that there are two regimes: low- and high-corruption. Our empirical results show that for countries with high-corruption, increases in trade openness significantly reduce pollutants emissions whatever CO₂ emissions or SO₂ emissions, and the larger effects of trade openness on environmental quality. However, the impact of trade openness on pollution was not found in countries with low-corruption. This study suggests that further trade openness and reduced environmental degradation (i.e., decline in CO₂ and SO₂ emissions) are compatible rather than competing objectives, especially in high-corruption countries. Furthermore, our results also show that in low-corruption countries, the negative effects of income on CO₂ emissions are statistically significant, but in high-corruption countries it is not so.

In this research, I study the relationship between bilateral Foreign Direct Investment (FDI) and difference in corruption between source and host countries. Using instrumental variables (IVs) approach, the results suggest that bilateral FDI between two countries might increase if the difference in corruption between them decreases. In addition, I find that firms from corrupt countries tend to invest abroad to exploit natural resources while those from less corrupt countries take advantage of relatively low local wages and open trade policies.

We evaluate the impact of real business cycle shocks on corruption and economic policy in a model of entry regulation in a representative democracy. We find that corruption is pro-cyclical and regulation policy is counter-cyclical. Corrupt politicians engage in excessive stabilization of aggregate fluctuations and behave as if they were Keynesian. We also find that business cycle shocks can induce political instability with politicians losing office in recessions.