Corruption and its impact on economic growth: is East Asia special?

Nasrul Ali

Research output: ThesisDoctoral Thesis

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Abstract

[Truncated abstract] The 1997 Asian Financial Crisis raised serious questions about the nature of East Asia's rise to economic prosperity, once labelled as a 'miracle' by the World Bank. In particular, East Asian governments were criticised for allowing rampant corruption to pervade their economies. At a conceptual level, the overwhelming majority of studies argue that corruption, defined as the misuse of public office for private gain, has impeded growth. Empirically, many studies have shown the detrimental impact of corruption on economic growth but few have analysed the particular effect of corruption on East Asia's economic growth in the years leading up to the 1997 Crisis, a period characterised by superior economic growth rates against the backdrop of corruption. This study seeks to fill that gap. By virtue of its clandestine nature, any study on corruption is subject to measurement limitations and this study is no exception. The only available data on corruption are indices published by a handful of various international organisations. Each of these indices follows a similar format: they are based partly or wholly on surveys of the corporate sector in each of the sample countries, the results of which are converted into corruption scores and used to rank the sample countries. Although there is a general consistency in rankings across the different indices, the survey questions tend to equate corruption with bribery. In one survey which questioned respondents about corruption and bribery in separate questions, the results indicated that the two are not necessarily synonymous at least in the minds of respondents. A brief analysis of the nature of corruption within East Asia reveals why the tendency to equate corruption with bribery can be misleading, and therefore raises doubts about the credibility of the aforementioned corruption indices. Many countries in East Asia are shown to harbour a network of patron-client relationships within a centralised framework. ... When using the available corruption indices as measures of corruption in a corruption-growth model that is applied to cross-sectional data covering 141 countries in 1996, corruption is found to have a significant positive relationship with economic growth for two of the corruption indices. However, no particular significant relationship is found to exist for East Asian countries within the sample. The corruption indices are then combined to produce a single index of corruption which is then used in a corruption-growth model and applied to panel data covering 33 countries over a twenty year period from 1984 to 2003. This time the corruption variable is found to have a significant positive relationship with economic growth for East Asian countries (excluding Singapore) during 1986-1996. Finally, the concept of rent-seeking is examined as an alternative to the typical principal-agent model of corruption used in the literature, based on its strong resonance with the particular nature of corruption in East Asia. A measure of rent-seeking is developed, and using cross-sectional data for 57 countries in 1996 reveals that rent-seeking has a significant positive relationship with economic growth.
Original languageEnglish
QualificationDoctor of Philosophy
Publication statusUnpublished - 2008

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