Abstract
This paper uses a probit and dprobit model to examine the domestic determinants of corruption in Eastern Europe and Central Asia. In addition, it also looks at whether economic links with a country that is perceived as corrupt—Russia—leads to an increase or decrease in the level of domestic corruption. Using a dataset at the firm level provided by the World Bank, this paper finds that the “Control Rights Hypothesis,” the “Bargaining Power Hypothesis”, and the “Grease the Wheels Hypothesis” are statistically significant at the domestic level and also shows that increased commerce links with Russia leads to a statistically significant correlation with the instance of corruption via the “Grease the Wheels Hypothesis” channel.
Highlights
Corruption, defined by Transparency International as the abuse of entrusted power for private gain, is a phenomenon that directly impedes reform and economic development in any society
In an attempt to better understand these determinants of corruption, this paper will examine three hypotheses that explain the causes of corruption — the “Control Rights Hypothesis,” the “Bargaining Power Hypothesis”, and the “Grease the Wheels Hypothesis” — in the context of trade relations with a country that is perceived as corrupt, namely with the Russian Federation
By focusing on the impact of trade with Russia, this paper explores whether economic ties with a country that is already perceived as corrupt leads to an overflow of corruption into the home economy, and whether this adversely affects the behavior of domestic firms and increases their own likelihood of giving a bribe themselves
Summary
Corruption, defined by Transparency International as the abuse of entrusted power for private gain, is a phenomenon that directly impedes reform and economic development in any society. Rampant domestic corruption can lead to low attractiveness for foreign investors and international trade partners. Corruption can lead to an unstable economic and political system, the growth of shadow economies, manipulation of prices, and the unfair distribution of income and social benefits. In an attempt to better understand these determinants of corruption, this paper will examine three hypotheses that explain the causes of corruption — the “Control Rights Hypothesis,” the “Bargaining Power Hypothesis”, and the “Grease the Wheels Hypothesis” — in the context of trade relations with a country that is perceived as corrupt, namely with the Russian Federation
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