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Corruption, soundness of the banking sector, and economic growth: A cross-country study

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  • Park, Junghee

Abstract

This paper explores the impact of corruption on both the banking sector and economic growth; we determine the impact using 76 macroeconomic data from various countries over the period 2002–2004. The results of various cross-sectional regressions provide substantial evidence that corruption significantly aggravates the problems with bad loans in the banking sector. In this study, we also find some evidence of a new channel through which corruption lowers economic growth: Corruption distorts the allocation of bank funds from normal projects to bad projects, which decreases the quality of private investments, hence it decreases economic growth.

Suggested Citation

  • Park, Junghee, 2012. "Corruption, soundness of the banking sector, and economic growth: A cross-country study," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 907-929.
    • Handle: RePEc:eee:jimfin:v:31:y:2012:i:5:p:907-929
    DOI: 10.1016/j.jimonfin.2011.07.007
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    More about this item

    Keywords

    Non-performing loans; Corruption perception index; Financial crisis; Economic Growth;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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