The Consequences of Corruption on Inflation in Developing Countries: Evidence from Panel Cointegration and Causality Tests

Şerife Özşahin,Gülbahar Üçler

doi:10.3390/economies5040049

Şerife Özşahin, Gülbahar Üçler

Open Access

https://doi.org/10.3390/economies5040049

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Journal: Economies	Publication Date: Dec 11, 2017
Citations: 12	License type: CC BY 4.0

Affiliation: Necmettin Erbakan University, Ahi Evran University

Abstract

Up until the 1980s, studies on corruption were dominated by disciplines of public administration and sociology. In the following years, however, economists have also provided a good amount of research on this issue. According to Transparency International Agency, corruption, which has a negative impact on most macroeconomic indicators, is “the abuse of entrusted power for private gain”. Even though the disruption of corruption causing weak growth and investment rates has long been examined, there is little evidence regarding its impact on inflation. In this study, the nexus between corruption and inflation was investigated for 20 countries over the period 1995–2015. Estimation results indicated that high corruption increased inflation rates, and that there was a unidirectional causal relationship from corruption to inflation for ten countries in the sample.

Highlights

Corruption is a multidimensional issue with far-reaching effects and is highly related to disciplines of sociology, political science, history, economics, and public administration
This study examined the relationship between corruption and inflation using data from 20 developing countries for the 1995–2015 period
To determine the relationship between corruption and inflation, the stationary of variables was first tested through the unit root methods, and the presence of a long-term relationship was investigated with co-integration tests

Summary

Introduction

Corruption is a multidimensional issue with far-reaching effects and is highly related to disciplines of sociology, political science, history, economics, and public administration. It is quite difficult to make an exact and comprehensive definition of corruption. Corruption has been defined as “the use of public office for private gain” (Gray and Kaufman 1998; Rose-Ackerman 1999; Lambsdorff 2007). In another definition by Shleifer and Vishny (1993), corruption was defined as the “sale by government officials of government property for personal gain”. With recent developments, it is inadequate to define corruption only as the abuse of public office. Corruption, which has a more comprehensive scope, is based on the transfer of benefits among the parties and the return offered

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Conclusion