Impact of Unemployment and Inflation on Corruption

Two problems that developing countries often face are high inflation and high unemployment. These provide a strong positive push to the level of corruption present in the country. The higher corruption level has a huge impact on the economic growth of the country. This article examines the impact of inflation and unemployment in developing countries on the level of corruption in an economy. The factors used to examine this impact are foreign portfolio investments, foreign direct investment, the Ease of Doing Business Index and the level of democracy. For data analysis panel data was collected for 162 countries, covering the period from 2005 to 2018. To examine the impact on corruption comprehensively, corruption was distributed among three variables. Dynamism was also studied through the generalised method of movements among inflation, unemployment and corruption. The outcome indicates inflation and unemployment positively impact corruption in an economy. Where a country has higher inflation rates than required, then this will automatically give an upward push to activities related to corruption. Similarly, if unemployment rates are higher than required, this will also contribute to rising activities associated with corruption.