Abstract
This paper analyzes the relationship between corruption and inflation for a sample of 100 developing and developed countries representing five regions (Americas, Europe, Middle East and North Africa, Sub-Saharan Africa and Asia Pacific) over the period 2000–2012. Various model estimations are carried out using alternative techniques and two indicators of corruption. Our findings provide evidence of a significant and positive relationship between all country corruption measures and inflation. Countries with a corrupted environment and bad governance use seigniorage as a source of revenue which induces higher monetary expansion and therefore higher inflation rates. After controlling for money supply, our results suggest that corruption is affecting inflation via other channels. Our results show also that the negative effect of corruption on inflation is different across subsample countries. The lack of sound and committed institutions in developing and emerging is a key point in explaining these disparities.
Appendix A. Countries list
Americas | Europe | MENA | Sub-Saharan Africa | Asia Pacific | |
---|---|---|---|---|---|
Argentina | Armenia | Moldova | Algeria | Angola | Australia |
Bolivia | Austria | Netherlands | Bahrain | Botswana | Bangladesh |
Brazil | Belarus | Norway | Egypt | Cameroon | China |
Canada | Belgium | Poland | Iran | Cote d’Ivoire | Hong Kong |
Chile | Bulgaria | Portugal | Israel | Ethiopia | India |
Colombia | Croatia | Romania | Jordan | Ghana | Indonesia |
Costa Rica | Czech | Russia | Kuwait | Kenya | Japan |
Ecuador | Denmark | Slovak | Lebanon | Malawi | Malaysia |
El Salvador | Estonia | Slovenia | Libya | Mali | New Zealand |
Mexico | Finland | Spain | Morocco | Mauritius | Pakistan |
Peru | France | Sweden | Oman | Mozambique | Philippines |
USA | Germany | Switzerland | Qatar | Namibia | Singapore |
Uruguay | Greece | Turkey | Saudi Arabia | Nigeria | South Korea |
Venezuela | Hungary | UK | Tunisia | Senegal | Thailand |
Iceland | Ukraine | UAE | South Africa | Vietnam | |
Ireland | Yemen | Sudan | |||
Italy | Tanzania | ||||
Latvia | Uganda | ||||
Lithuania | Zambia | ||||
Luxembourg | Zimbabwe |
Appendix B. Definitions and sources of variables
Variable | Definition | Source |
---|---|---|
INF | Increasing rate of consumer price index over 1-year period | WDI |
CPI | Corruption perception index | Transparency international |
COC | Control of corruption index | WGI |
M2 | Money and quasi money as % of GDP | WDI |
Growth | Annual growth of per capita real GDP | WDI |
GC | Government final consumption expenditure over GDP | WDI |
OPEN | Total amount of exports and imports over GDP | WDI |
PS | Political stability | WGI |
Legal origin | Dummies origin for each country’s legal system: French German and Scandinavian. | La Porta et al. (1999) dataset. |
Appendix C. Summary statistics and pairwise correlation matrix
Variable | Variable | Obs | Mean | Std. Dev | Min | Max |
---|---|---|---|---|---|---|
INF | Inflation rate | 1244 | 0.075 | 0.220 | –0.098 | 4.317 |
CPI | Corruption perception index | 1249 | 4.788 | 2.314 | 1 | 10 |
COC | Control of corruption Index | 1200 | 0.257 | 1.077 | –1.517 | 2.5 |
M2 | Money and quasi money (% GDP) | 1265 | 78.666 | 75.450 | 10.45 | 669.88 |
Growth | Annual growth of per capita real GDP | 1284 | 2.585 | 4.241 | –17.95 | 38.057 |
GC | Government consumption expenditure (% GDP) | 1272 | 16.172 | 5.132 | 2.047 | 42.5 |
OPEN | Total amount of exports and imports (% GDP) | 1272 | 90.280 | 59.928 | 20.258 | 448.3 |
PS | Political stability | 1200 | 0.007 | 0.979 | –2.812 | 1.668 |
INF | CPI | COC | M2 | Growth | GC | OPEN | PS | |
---|---|---|---|---|---|---|---|---|
INF | 1 | |||||||
CPI | –0.1908 | 1 | ||||||
COC | –0.2226 | 0.9808 | 1 | |||||
M2 | –0.1201 | 0.526 | 0.5195 | 1 | ||||
Growth | –0.1191 | –0.1972 | –0.1871 | –0.1407 | 1 | |||
GC | 0.0438 | 0.4638 | 0.4614 | 0.1369 | –0.1815 | 1 | ||
OPEN | –0.0233 | 0.3379 | 0.3282 | 0.4958 | 0.0462 | –0.0146 | 1 | |
PS | –0.1913 | 0.7427 | 0.7675 | 0.3763 | –0.0825 | 0.4188 | 0.3783 | 1 |
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