Institutional Quality, Corruption, and Income Inequality - A Panel Study of Selected SAARC Economies

Abstract

Previous studies have primarily focused on issues related to income inequality, aiming to identify the underlying causes and urging swift action to mitigate such disparities. In this context, the current article expands upon existing literature by introducing the influence of corruption and institutional quality. This study contributes to the existing knowledge by investigating the interplay between institutional quality, corruption, and income inequality within SAARC countries spanning 2000 to 2021, sourced from World Governance Indicators, Transparency International, Global Consumption and Income Project, and World Development Indicators. After analysed the properties of data, FMOLS analytical approach employed. The empirical analysis validates the enduring effects of the examined factors on income inequality over the long term. The findings indicate that institutional quality exerts a notable and favorable influence in reducing income inequality. Conversely, corruption, the combined impact of corruption and institutional quality substantially and adversely affect income inequality. Addressing the imperative of ensuring an equitable income distribution across the SAARC economies necessitates implementing comprehensive strategies to foster enduring institutional quality and effectively manage corruption. Study’s conceptual and empirical advancements carry significant implications for policy formulation within this region. They offer valuable insights for the region’s endeavors to ameliorate income inequality. This study underscores the importance of measures to enhance institutional quality and combat corruption within SAARC countries. Such measures should be strategically designed to tackle income distribution challenges and promote greater equity.