Economic analysis of corruption: evidence from Pakistan

Abstract

Misuse of public power is generally known as corruption, and this issue becomes an international dilemma in the economic world. However, different levels of corruption exist in developing and developed countries. This study attempts to identify the economic determinants of corruption in Pakistan and investigate the impact of trade openness on corruption. This study empirically inspects these impacts by using data for the period 1987–2017. This study is based on time series analysis; augmented dickey fuller test (ADF), Tobit Model of Censored Regression, and Autoregressive Distributed Lag (ARDL) are used to estimate significant economic determinants of corruption in Pakistan. It is found that literacy rate, GDP growth, and economic integration have a negative effect on corruption, whereas Inflation is found to have a positive effect on corruption in Pakistan. However, investment, an extensive index, public spending, and income distribution are statistically insignificant as economic determinants in the case of Pakistan.

Keywords:

• Corruption
• trade openness
• economic growth
• Pakistan; ARDL
• public spending

Acknowledgement

The authors are grateful to the anonymous referees and the editorial team of the journal for their extremely useful suggestions to improve the quality of the article. The authors have not received any financial support for the research, authorship and/or publication of this article.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data is available on request.

Notes

1 See Aidt (2003), Corruption is a persistent feature of human societies over time and space. Corruption is an act in which the power of public office used for personal gain.

2 Rent seeking: It is the use of the resources of a company, an organization or an individual to obtain economic gain from others without reciprocating any benefits to society through wealth creation.

3 A public institution is a juristic person in a country which is backed through public funds and controlled by the state. When public institutions are created, they lead to many other establishments such as new laws.

4 Operational Modeling is a business first approach to help you optimize your use of Open Text.

5 The ECGD is a government department whose statutory powers are set out in the Export and Investment Guarantees Act 1991 (as amended by the Industry and Exports (Financial Support) Act 2009).

6 https://tradingeconomics.com/pakistan/corruption-rank

7 See book of V. Y. Belokrenitsky and V. N. Moscalenko – The Political History of Pakistan 2007

8 See the paper ‘The Political instability of Pakistan’ by Callard (1956).

9 Economic integration is the unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration.

10 Black Market: A black market, underground economy, or shadow economy is a clandestine market or transaction that has some aspect of illegality or is characterized by some form of noncompliant behavior with an institutional set of rules.

11 See paper of Stelios Michalopoulos-2007 ‘The Ethno-linguistic diversity’

12 A sort of parallel customs system that made it possible to bring anything into the country without leaving a paper trail – in exchange for a fat bribe.

13 An economic profit or loss is the difference between the revenue received from the sale of an output and the opportunity cost of the inputs used. In calculating economic profit, opportunity costs are deducted from revenues earned.

14 Correlation is a statistical technique that is used to measure and describe the STRENGTH and DIRECTION of the relationship between two variables. Correlation requires two scores from the SAME individuals.

15 Dr. Gujarati has published extensively in recognized national and international journals, such as the Review of Economics and Statistics, the Economic Journal, the Journal of Financial and Quantitative Analysis, the Journal of Business, the American Statistician, and the Journal of Industrial and Labor Relations.

16 The primary World Bank collection of development indicators, compiled from officially-recognized international sources. It presents the most current and accurate global development data available, and includes national, regional and global estimates.

17 The Akaike Information Criterion (AIC) is a measure of the relative quality of statistical models for a given set of data. Given a collection of models for the data, AIC estimates the quality of each model, relative to each of the other models. Hence, AIC provides a means for model selection.

18 ‘Openness to merchandise trade’ is the value of merchandise trade (exports plus imports) as a percent of gross domestic product (GDP).GDP per capita is calculated using purchasing power parity (PPP) in constant 2011 dollars.

19 The KOF Globalization Index measures the three main dimensions of globalization: economic, social and political. In addition to three indices measuring these dimensions, we calculate an overall index of globalization and sub-indices referring to actual economic flows, economic restrictions, data on information flows, data on personal contact and data on cultural proximity. Data are available on a yearly basis for 207 countries over the period 1970–2014.

Additional information

Notes on contributors

Afshan Uroos

Miss Afshan Uroos is a Phd scholar at University of Karachi.

Malik Shahzad Shabbir

Malik Shahad is visitingg lecturer at University of Lahore.

Muhammad Umar Zahid

Zahid Umar is a Phd scholar at University of Karachi.

Ghulam Yahya

Dr Ghulam Yahya is Assistant professor at University of Azzad Jumma and Kashmir.

Bilal Ahmed Abbasi

Dr Bilal Ahmed Abbasi is assistant professor at University of Azzad Jumma and Kashmir.