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The Impact of Corruption and Shadow Economy on the Economic and Sustainable Development. Do They “Sand the Wheels” or “Grease the Wheels”?

Author

Listed:
  • Răzvan Hoinaru

    (School of Business and Management, Queen May University of London, London E1 4NS, UK)

  • Daniel Buda

    (Department of Public Administration and Management, Babeş-Bolyai University, Cluj-Napoca 400132, Romania)

  • Sorin Nicolae Borlea

    (Doctoral School of Economics, University of Oradea, Oradea 410087, Romania
    Department of Economics, Vasile Goldis “Western” University of Arad, Arad 310414, Romania)

  • Viorela Ligia Văidean

    (Department of Finance, Babeș-Bolyai University, Cluj-Napoca 400591, Romania)

  • Monica Violeta Achim

    (Department of Finance, Babeș-Bolyai University, Cluj-Napoca 400591, Romania)

Abstract

Having in mind the main debate “grease the wheels” vs. “sand the wheels”, the main objective of this study is to find the way in which corruption and shadow economy influence economic and sustainable development. A large cross-country database of 185 countries is used for the 2005–2015 time period. We find that corruption and shadow economy are poverty-driven diseases and they highly characterize low-income countries. Thus, the higher levels of corruption and shadow economy are correlated with low levels of economic and sustainable development. Then, the main contribution of this work consists of finding general and empirical evidence for the destructive role held by the corruption and shadow economy phenomena upon the economic and sustainable development of states. However, we also find some evidence that corruption can be also seen as a way to circumvent the law in order to achieve higher economic benefits and thereby to increase economic development. In addition, we find that economic and sustainable development in high-income countries is more strongly and negatively affected by the phenomena of corruption and shadow economy than in the case of low-income countries. Our research may have political implications for the government institutions that need to adopt the best-required policies, in order to boost economic and sustainable development. For low-income countries, we find some evidence for positive effects of corruption and shadow economy upon economic and sustainable development and the immediate practical implications are not to encourage but to effectively and strongly fight against these destructive phenomena and to find the proper channels to increase the institutional quality and to adopt the appropriate regulatory policies.

Suggested Citation

  • Răzvan Hoinaru & Daniel Buda & Sorin Nicolae Borlea & Viorela Ligia Văidean & Monica Violeta Achim, 2020. "The Impact of Corruption and Shadow Economy on the Economic and Sustainable Development. Do They “Sand the Wheels” or “Grease the Wheels”?," Sustainability, MDPI, vol. 12(2), pages 1-27, January.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:2:p:481-:d:306575
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    2. Stefan Petranov & Dimitar Zlatinov & Milen Velushev & Lillyana Georgieva & Radostina Ivcheva, 2022. "Shadow Economy and Production Factors: Results from an Empirical Analysis with a Panel Data Set," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 44-64.
    3. Roberta Troisi & Annamaria Nese & Rocío Blanco-Gregory & Monica Anna Giovanniello, 2023. "The Effects of Corruption and Innovation on Sustainability: A Firm-Level Analysis," Sustainability, MDPI, vol. 15(3), pages 1-15, January.
    4. Pedro Bermúdez & Luis Verástegui & José Luis Nolazco & Dante A. Urbina, 2024. "Effects of Corruption and Informality on Economic Growth through Productivity," Economies, MDPI, vol. 12(10), pages 1-22, October.
    5. Younas, Zahid Irshad & Qureshi, Atiqa & Al-Faryan, Mamdouh Abdulaziz Saleh, 2022. "Financial inclusion, the shadow economy and economic growth in developing economies," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 613-621.
    6. Fisayo Fagbemi & Tolulope Temilola Osinubi & Geraldine Ejiaka Nzeribe & Taofik Olatunji Bankole, 2022. "Human Capital Development Challenge: Why Corruption Eradication is a Panacea in Nigeria," Journal of Development Policy and Practice, , vol. 7(2), pages 180-205, July.
    7. Jean‐Claude Kouladoum, 2023. "Technology and control of corruption in Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(6), pages 1163-1180, August.
    8. Nesrine Dardouri & Abdelkader Aguir & Ramzi Farhani & Mounir Smida, 2023. "Revisiting the Determinants of Investment- The Case of Tunisia," Post-Print hal-04101430, HAL.
    9. Nerajda Feruni & Eglantina Hysa & Mirela Panait & Irina Gabriela Rădulescu & Alina Brezoi, 2020. "The Impact of Corruption, Economic Freedom and Urbanization on Economic Development: Western Balkans versus EU-27," Sustainability, MDPI, vol. 12(22), pages 1-22, November.
    10. Richard Kasa & Gábor Réthi & György Hauber & Krisztina Szegedi, 2023. "Simulation of Corruption Decisions—An Agent-Based Approach," Sustainability, MDPI, vol. 15(3), pages 1-18, January.
    11. Daniel Němec & Eva Kotlánová & Igor Kotlán & Zuzana Machová, 2021. "Corruption, Taxation and the Impact on the Shadow Economy," Economies, MDPI, vol. 9(1), pages 1-16, February.
    12. Yu-Xia Tu & Oleksandr Kubatko & Vladyslav Piven & Bohdan Kovalov & Mykola Kharchenko, 2023. "Promotion of Sustainable Development in the EU: Social and Economic Drivers," Sustainability, MDPI, vol. 15(9), pages 1-15, May.
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