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Corruption Control, Government Effectiveness and Banking Stability: Does Corruption Grease or Sand the Wheels?

Author

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  • Faris Alshubiri

    (Dhofar University)

  • Syed Ahsan Jamil

    (Dhofar University)

  • Samia Fekir

    (Jouf University)

Abstract

The present study aimed to investigate the relationship between corruption control, government effectiveness and banking stability in 21 countries during the period of 2003–2019. The study used many estimators to overcome heterogeneity and endogeneity issues as well as diagnostic tests to increase robustness. The unit root test results showed that all variables were stationary. The Pedroni, Kao and Westerlund cointegration test results supported the rejection of the null hypothesis of no cointegration, confirming the long-run effects of corruption control and government effectiveness on banking stability. In addition, FMOLS and DOLS were used to control endogeneity. The dynamic panel data estimator results revealed a significant negative relationship between corruption control, government effectiveness and banking stability in high-income countries. The low-income country results indicated that the opposite scenario was true for most estimations. The middle- and high-income country results were the same for the corruption control, government effectiveness and banking stability nexus but different for government effectiveness and banking stability. The main conclusions of the study were that countries with high corruption control enhance banking stability growth by employing the grease the wheels hypothesis under high levels of government effectiveness and countries with low corruption control impede banking stability growth by applying the sands the wheels hypothesis under low levels of government effectiveness.

Suggested Citation

  • Faris Alshubiri & Syed Ahsan Jamil & Samia Fekir, 2024. "Corruption Control, Government Effectiveness and Banking Stability: Does Corruption Grease or Sand the Wheels?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 2656-2681, March.
    • Handle: RePEc:spr:jknowl:v:15:y:2024:i:1:d:10.1007_s13132-023-01277-x
    DOI: 10.1007/s13132-023-01277-x
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    More about this item

    Keywords

    Corruption control; Government effectiveness; Banking stability; Institutional quality; Panel data;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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