The nonlinear impact of corruption on the level of economic development

Abstract

Background: The problem of the impact of corruption on the economy has not been decisively resolved by scientists despite many scientific studies. Discrepancies occur even at the level of determining the direction of impact because the literature presens many arguments both for the negative and positive impact of corruption on economic development and entrepreneurship. The negative effects of corruption are associated with the inefficiency of the use of available resources, while the positive effects of corruption occur when corruption is a solution to another imperfection of the economy, e.g., bureaucracy, in which case, corruption promotes economic development.

Research purpose: The following article is a voice in the discussion. Based on an analysis of the literature, I built a hypothesis of the nonlinear nature of the impact of corruption on the level of economic development.

Methods: Verification of this hypothesis uses the properties of quadratic and logarithmic functions. A study on econometric panel data used selected variables – panel models with fixed-and random-effects were used for this purpose.

Conclusions: Studies have shown that a nonlinear relationship between the variables does actually occur. This is undoubtedly an added value of the research. The conclusions of the study explain the cause of the rapid economic development in the case of the corrupt, who began the fight against corruption. In the case of these countries, introducing fundamental changes in the oversight of public officials results in a significant reduction in corruption at the lowest level of government, thereby rapidly increasing small enterprise, which had been constrained by the cost of corruption. The gradual increase in the scale of anticorruption immediately brings smaller effects, and at the same time, it requires increased funding for the fight against corruption. In this case, the positive effects are visible in the long term.