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Corruption and macro performance

Author

Listed:
  • Sandra Damijan
  • Joze Damijan

Abstract

This paper investigates in what extent the quality of the institutional system, manifested in the general evidence of corruption, impacts the macroeconomic performance of transition countries. In particular, we examine whether countries with higher levels of corruption perform worse in terms of economic growth, whereby we control for the relationship between corruption, levels of shadow economy and institutional efficiency. By using data from the Transparency International, EBRD Transition Report, Penn World Tables, World Bank, Schneider and Buehn (2011) and IMF for 28 transition economies in the period 1996-2010, we find that higher institutional quality promotes economic growth and impedes activities in shadow economy. On the other side, findings of the direct effects of corruption on economic growth are less conclusive. Corruption is shown in some regions to affect growth through state capture activities, while in others it is shown to have a long-run rather than immediate negative impact on economic growth. Both, corruption and quality of institutions, matter for economic growth reflecting the flip sides of the coin.

Suggested Citation

  • Sandra Damijan & Joze Damijan, 2016. "Corruption and macro performance," Working Papers of VIVES - Research Centre for Regional Economics 627698, KU Leuven, Faculty of Economics and Business (FEB), VIVES - Research Centre for Regional Economics.
    • Handle: RePEc:ete:vivwps:627698
    Note: paper number 2018.62
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    File URL: https://lirias.kuleuven.be/retrieve/518139
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