Corruption and Total Factor Productivity in the Long-Run: Evidence from Post-WW2 Turkey

ABSTRACT

In this study, we investigate the relationship between corruption and total factor productivity (TFP) in Turkey. Our study contributes to the literature in several ways in terms of data, empirical specification, and method. First, we use a new and novel index of corruption for Turkey between the years 1950 and 2014. Second, we estimate the long-run cointegrating relationship between corruption and TFP in Turkey. Finally, we not only investigate how corruption affects TFP, but also if this effect is conditional on government size. We find that corruption decreases TFP in the long-run and its adverse effects on TFP increases with government size.

KEYWORDS:

• ARDL
• corruption
• TFP
• Turkey

JEL CLASSIFICATION:

• D24
• D73
• O43
• O52

Disclosure statement

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

Notes

1. See Jain (2001), Aidt (2003), and Svensson (2005).

2. See also Polanec (2004).

3. We use data from Penn World Tables for the following variables, for which the technical details can be found in Feenstra, Inklaar and Timmer (2015, 3165–3167):

TFP: Welfare relevant total factor productivity at constant national prices (2011 = 1)

EXP: Share of merchandise exports at current PPPs in current price GDP.

GOVT: Share of government consumption at current PPPs in current price GDP.

The data for inflation rate (INF) are from the statistical database of the Presidency of Strategy and Budget Directorate, Republic of Turkey.

4. In the ARDL(2, 3) regression, the lag lengths $p$ = 2 and $q_1$ = 3 are selected by the Akaike Information Criterion (AIC) with $p^{max}$ and $q_1^{max}$ both set to 4.

5. In $ARDL\left(p,q_1,q_2,\dots ,q_k\right)$ regressions, the lag lengths are selected by the Akaike Information Criterion (AIC) with $p^{max}$ and $q_j^{max}$ set to 4, for $j=1,2,\dots ,k$.

6. See e.g. Valdovinos (2003).

7. See Arango (2013) and Orucoglu (2015).

Additional information

Notes on contributors

Ozgur Teoman

Ozgur Teoman is a Professor of Economics at Hacettepe University. His main interests Economic History and Agricultural Economics with a particular focus on Development Economics.

Oguzhan Dincer

Oguzhan Dincer is a Professor of Economics and the Founding Director of the Institute for Corruption Studies at the Illinois State University. His main research interests are Development Economics and Public Economics with a particular focus on Economics/Politics of Corruption.

Tarkan Cavusoglu

Tarkan Cavusoglu is a Professor of Economics at Hacettepe University. His main interests are Macroeconomics and Time Series Econometrics with a particular focus on Public Finance.