The Moderating Effect of Digitalisation on the Relationship between Corruption and Domestic Resource Mobilisation: Evidence from Developing Countries

Abstract

Purpose: Domestic Resource Mobilisation (DRM) is vital for government financing of essential sectors like infrastructure, education, and healthcare, but corruption impedes revenue collection and erodes trust in government institutions. Nevertheless, digitalisation offers a promising way to combat corruption and improve DRM. This study aims to explore how digitalisation can enhance transparency and efficiency in addressing these issues by specifically investigating how digitalisation can moderate the relationship between corruption and DRM in developing nations. Methodology: Utilizing panel data of 65 developing countries from 2007 to 2019, a Panel Corrected Standard Errors (PCSE) estimator was employed. Findings: The findings indicate that corruption negatively affects DRM, while digitalisation has a positive influence. Importantly, digitalisation was found to moderate the adverse impact of corruption on DRM, albeit after a certain threshold level of digitalisation. Across regions, the net effect of this interaction varied, with some regions experiencing negative consequences. Notably, the existence of a threshold level of digitalisation above which its influence becomes more pronounced in mitigating corruption's impact on DRM revealed that the association is non-linear. Originality: This study addressed an important gap in the literature by examining how digitalisation moderates the connection between corruption and DRM in developing countries, offering nuanced insights into the feasibility of leveraging digital technologies to bolster revenue mobilisation despite corruption challenges. Implication: These results have significant implications for policymakers, highlighting the potential of digitalisation to enhance revenue mobilisation and combat corruption in developing countries, albeit with context-specific considerations.