Globalization, (Fighting) Corruption and Development: How are These Phenomena Linearly and Nonlinearly Related in Wealth Effects?

Abstract

Purpose – Is globalization instrumental in fighting corruption? Do wealth effects matter in this fight? Are findings valid when linearity assumptions are dropped? This paper assesses the Lalountas et al. (2011) hypotheses (conclusions) in the African context. Design/Methodology/Approach – Though not in form, yet in substance the intuition and motivation are compatible with those of Lalountas et al. (2011). Four hypotheses are tested from different methodological and contextual standpoints. In the analysis, while the economic and social dimensions of globalization are reflected in the HDI, the political dimension is captured by good governance indicators. A TSLS-IV estimation technique is applied where-in globalization instruments of trade and financial liberalization are instrumented on human-development and government-quality to account for corruption (corruption-control) effects. Thus the intuition is assessing how globalization is instrumental in the fight against corruption through human development (economic and social dimensions) and government quality (political dimension). Findings – Hypothesis 1: Globalization is a powerful tool in fighting corruption (True). Hypothesis 2: Globalization is an important tool in fighting corruption only in Middle and High income countries (Partially True). Hypothesis 3: For Low income countries globalization has no significant impact on corruption (True). Hypothesis 4: Hypotheses 1 and 2 are valid only under linearity (False). Social Implications – In countries with high levels of per capita, emphasis is placed on the political and social dimensions of globalization and as a result the effects of this phenomenon on corruption-control are significant. Conversely, in nations with low levels of per capita income, emphasis is given to the economic dimension of international integration and as a result the effect of globalization on corruption is limited. As a policy implication, persistent globalization as an effective means to reduce corruption in developing countries might lead to inappropriate policies in low income countries. Originality/Value – This paper has tested the Lalountas et al. (2011) hypotheses in the continent where concerns of globalization, human development and corruption are most acute.