Volume 24, Issue 1 (2024)
QJER 2024, 24(1): 193-222 |
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Babaei Agh Esmaili M, Khodavaisi H. New evidence of the impact of globalization on corruption: applying the panel smooth threshold regression model. QJER 2024; 24 (1) : 8
URL: http://ecor.modares.ac.ir/article-18-67930-en.html
URL: http://ecor.modares.ac.ir/article-18-67930-en.html
1- Ph.D. Candidate in Economics, Urmia University, Urmia, Iran
2- Associate Prof. of Economics, Urmia University, Urmia, Iran , h.khodavaisi@urmia.ac.ir
2- Associate Prof. of Economics, Urmia University, Urmia, Iran , h.khodavaisi@urmia.ac.ir
Abstract: (854 Views)
Introduction
The existing literature on corruption is divided into two categories. The first category focuses on the determinants of corruption. Various empirical studies show that the main factors affecting the scope and extent of corruption are the quality of urban services, the level of wages in the public sector, the rule of law, especially anti-corruption laws and access to natural resources, the level of development and the degree of competitiveness of the economy, globalization and industrial policy of the country . The second category of existing literature focuses on the consequences of corruption. In other words, we can refer to studies such as the impact of corruption on the growth, quality of public infrastructure and public investment, foreign direct investment, income inequality and poverty, and government spending.
In line with the first category of the above-mentioned studies, the effect of globalization on corruption is the main focus of this article. In other words, in this research, we seek to answer the question, does the spread of globalization affect the level of corruption? Considering that globalization can have different effects on corruption, which depends on the level of globalization of countries, so it is likely that there is a non-linear relationship between them. For this purpose, statistical data of member countries of the Organization of the Islamic Cooperation (OIC) during the period 2003-2019, and the econometric method of panel smooth threshold regression have been used.
Methodology
For analyzing data, panel smooth transition regression (PSTR) model is used, which was presented and expanded by Gonzalez et al. (2005) and Colletaz & Hurlin (2006). We use the general model of the research, which is specified in the form of the following equation:
Where, COC: Corruption control index, KOF: Globalization index and The Control symbol indicates the control variables that are introduced below:
EF: economic freedom, GS: Government consumption expenditure as a percentage of GDP, a proxy for the size of the government, LGDP: the logarithm of real per capita income as an economic development index, INF: inflation rate, FL: the share of women among all employees (in percentage) used for the participation index of women or gender and PSI: Political stability index.
Results and Discussion
The results of the estimation suggest a strong nonlinear relationship between variables and represent a two-regime model with a threshold of 69.75 and a slope of 0.78. According to research findings, globalization has a negative and significant effect in the first regime and a positive and significant effect on the corruption control index in the second regime. Therefore, the U-shaped hypothesis between globalization and the corruption control index is confirmed in the studied countries. Also, with the transition variable (globalization index) passing the threshold limit and in the second regime, the positive effect of economic development on the corruption control index has decreased. The size of the government and the participation rate of women (gender) in both regimes have a negative and positive effect on the corruption control index, respectively. The negative relationship between economic freedom and corruption control index in the first regime has turned into a positive relationship in the second regime. The effect of political stability is positive and significant before the threshold limit, and finally, inflation in both regimes has no significant effect on the corruption control index.
Conclusion
Based on the results of this study, suggestions should be made to facilitate the identification and control of activities mixed with corruption:
1) Considering the direct effect of globalization in controlling corruption and its indirect effect through the removal of restrictions on trade and foreign investment (the channel of influence of the economic freedom variable), it is suggested that the countries under study have the necessary infrastructure to improve the globalization level through institutional and structural reforms, market liberalization, increasing competition and transaction transparency, and improving services in all economic sectors.
2) Legislators and statesmen of the studied countries should take the necessary measures for the fair distribution of income and reduce the class gap as a driving factor of corruption, in parallel with economic development.
3) Considering that with the size of the governments, the level of corruption has also increased, so comprehensive policies and programs should be implemented in order to make the government smaller, so more emphasis should be placed on privatization and reduction of government monopolies. In thix context, reducing the number of government employees, moving towards electronic government are among the actions that can lead to the shrinking of the public sector.
4) Increasing the relative share of women's employment reduces corruption. It is suggested to increase the share of women's participation in the government sector in these countries.
The existing literature on corruption is divided into two categories. The first category focuses on the determinants of corruption. Various empirical studies show that the main factors affecting the scope and extent of corruption are the quality of urban services, the level of wages in the public sector, the rule of law, especially anti-corruption laws and access to natural resources, the level of development and the degree of competitiveness of the economy, globalization and industrial policy of the country . The second category of existing literature focuses on the consequences of corruption. In other words, we can refer to studies such as the impact of corruption on the growth, quality of public infrastructure and public investment, foreign direct investment, income inequality and poverty, and government spending.
In line with the first category of the above-mentioned studies, the effect of globalization on corruption is the main focus of this article. In other words, in this research, we seek to answer the question, does the spread of globalization affect the level of corruption? Considering that globalization can have different effects on corruption, which depends on the level of globalization of countries, so it is likely that there is a non-linear relationship between them. For this purpose, statistical data of member countries of the Organization of the Islamic Cooperation (OIC) during the period 2003-2019, and the econometric method of panel smooth threshold regression have been used.
Methodology
For analyzing data, panel smooth transition regression (PSTR) model is used, which was presented and expanded by Gonzalez et al. (2005) and Colletaz & Hurlin (2006). We use the general model of the research, which is specified in the form of the following equation:
Where, COC: Corruption control index, KOF: Globalization index and The Control symbol indicates the control variables that are introduced below:
EF: economic freedom, GS: Government consumption expenditure as a percentage of GDP, a proxy for the size of the government, LGDP: the logarithm of real per capita income as an economic development index, INF: inflation rate, FL: the share of women among all employees (in percentage) used for the participation index of women or gender and PSI: Political stability index.
Results and Discussion
The results of the estimation suggest a strong nonlinear relationship between variables and represent a two-regime model with a threshold of 69.75 and a slope of 0.78. According to research findings, globalization has a negative and significant effect in the first regime and a positive and significant effect on the corruption control index in the second regime. Therefore, the U-shaped hypothesis between globalization and the corruption control index is confirmed in the studied countries. Also, with the transition variable (globalization index) passing the threshold limit and in the second regime, the positive effect of economic development on the corruption control index has decreased. The size of the government and the participation rate of women (gender) in both regimes have a negative and positive effect on the corruption control index, respectively. The negative relationship between economic freedom and corruption control index in the first regime has turned into a positive relationship in the second regime. The effect of political stability is positive and significant before the threshold limit, and finally, inflation in both regimes has no significant effect on the corruption control index.
Conclusion
Based on the results of this study, suggestions should be made to facilitate the identification and control of activities mixed with corruption:
1) Considering the direct effect of globalization in controlling corruption and its indirect effect through the removal of restrictions on trade and foreign investment (the channel of influence of the economic freedom variable), it is suggested that the countries under study have the necessary infrastructure to improve the globalization level through institutional and structural reforms, market liberalization, increasing competition and transaction transparency, and improving services in all economic sectors.
2) Legislators and statesmen of the studied countries should take the necessary measures for the fair distribution of income and reduce the class gap as a driving factor of corruption, in parallel with economic development.
3) Considering that with the size of the governments, the level of corruption has also increased, so comprehensive policies and programs should be implemented in order to make the government smaller, so more emphasis should be placed on privatization and reduction of government monopolies. In thix context, reducing the number of government employees, moving towards electronic government are among the actions that can lead to the shrinking of the public sector.
4) Increasing the relative share of women's employment reduces corruption. It is suggested to increase the share of women's participation in the government sector in these countries.
Article number: 8
Keywords: Globalization, Corruption, Panel Smooth Threshold Regression Model, Organization of the Islamic Conference
Article Type: Original Research |
Subject:
International Economics
Received: 2023/03/7 | Accepted: 2023/04/14 | Published: 2024/03/18
Received: 2023/03/7 | Accepted: 2023/04/14 | Published: 2024/03/18
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