Monday, May 3, 2010

Corruption and economic welfare

I collected data on GDP per capita and Corruption Perceptions Index (CPI) for 50 countries in the year 2009, disregarding the level of GDP per capita. The sample consists of developed, developing and least developed coutries. I discovered significantly negative relationship between GDP per capita and perception of corruption. CPI ranges from 1 to 10. Higher index implies lower corruption perception.

Corruption and economic welfare across nations
Source: IMF (2010), Transparency International (2009), own estimate

In general, countries with higher GDP per capita have significantly lower corruption perception and better institutional governance as well as the rule of law. The main finding is that if GDP per capita increases by 1000 USD, Corruption Perceptions Index will, on average, increase by 0.2 index points, all other remaining constant. It means that the persistence of corruption drops when countries become wealthier. GDP per capita is a good predictor of corruption perception. In general, 74 percent of the variability of corruption perception in the sample is explained by GDP per capita variation.

The least corrupt countries in the sample are New Zealand (9.4), Denmark (9.3), Sweden (9.2) and Switzerland (9.0). The highest perception of corruption was found in Haiti (1.8), Venezuela (1.9), Russia (2.2) and Belarus (2.4).

As we can see, fighting corruption is an important policy measure of encouraging economic development on the road to prosperity.

1 comment:

  1. This is very interesting. Some work I have done shows that a wide range of measures of institutional quality and economic freedom all tell similar stories about well-being in different countries. See: