A Multinational Analysis of Corruption and Economic Activity

Abstract

The relationship between corruption and economic activity is a complex one. The purpose of this study is to examine the relationship in selected countries between level of corruption and economic activity, using data obtained from the Organization of Economic Cooperation and Development (OECD) and Transparency International (TI). Transparency International publishes annually a ranking of countries according to the Corruption Perceptions Index (CPI). Examples of corruption activities include: (1) bribery, (2) corporate fraud, (3) cartels, and (4) corruption in supply chains and transnational transactions. Corruption is associated with a variety of problems, such as impeding economic development. Effective corporate governance that restricts corruption benefits not only the business firm but also economic activity in host countries. Results of this study offer insights into the consequences of corruption on economic activity. Generally lower-corruption countries have experienced significantly less unemployment than higher-corruption countries. In addition, gross fixed capital formation and foreign direct investment were more favorable (though not significantly different) for the lower-corruption countries.

Keywords: Corruption, corporate fraud, economic development, Transparency International

JEL Classification: A13, B23, C12, C82, F00, F23, G38, I18, K2, L51, M2, O11, O57, P52, Z1