Corruption, Poverty and Economic Performance: Eastern Europe and Central Asia (ECA) Countries

Abstract

Corruption, defined as “the misuse of public power for private benefit.” The World Bank describes corruption as one of the greatest obstacles to economic and social development. It undermines development by distorting the rule of law and weakening the institutional foundation on which economic performance depends. In past decades, many theoretical and empirical studies have presented corruption hinders investment, reduces economic growth, restricts trade, distorts government expenditures and strengthens the underground economy. In addition, they have shown a strong connection between corruption and poverty and income inequality. On the other hand, the literature on corruption points to the conclusion that corruption by itself does not lead to poverty. Rather, corruption has direct consequences on economic and governance factors, intermediaries that in turn produce poverty. Although corruption is seen in many countries in the world, it is higher and widespread in developing countries. This study investigates relation between corruption, poverty, and economic performance by using a panel consisting of countries in the Eastern Europe and Central Asia countries. It was shown that corruption affected directly economic performance and low economic performance leads to poverty. Additionally, results imply that rules against corruption could affect economic growth indirectly through their impact on the level of corruption.