Economic and Political Factors Influencing Corruption in Developing Countries

Abstract

Corruption is a global issue that is known to disproportionately affect developing countries. It has a detrimental impact on resource allocation, government and public policy, and the development of the private sector. To design effective policies to combat corruption, it is essential to identify the factors that influence it. This study aims to contribute to the literature on corruption in developing countries by investigating the economic and political factors that influence it. The study employs a fixed effects model with Driscoll-Kraay standard errors to estimate the impact of economic growth, economic freedom, trade openness, inflation, democracy, and political stability on corruption. The study sample includes 56 developing countries over the period 2002-2012. Results indicate that economic growth, economic freedom, trade openness, democracy, and political stability reduce corruption, while inflation promotes it. The empirical findings draw attention to the numerous economic and political factors that influence corruption in developing countries. Based on the study results, policy recommendations for preventing and reducing corruption, such as establishing stable and high-rate economic growth, implementing policies aimed at combating inflation, conducting policies that enhance economic integration, developing democratic reforms, and ensuring strong government can reduce corruption in developing countries. In summary, the study findings highlight the need for multidimensional policy approaches to combat corruption in developing countries.