Does financial development reduce the level of corruption? Evidence from a global sample of 140 countries

Chandan Sharma and Sudharshan Reddy Paramati

International Journal of Finance & Economics, 2021, vol. 26, issue 4, 5093-5109

Abstract: The current research explores the role of financial sector development on the control of corruption in a global sample of 140 countries. Using annual data from 1996 to 2015, this study makes use of system generalized method of moments technique to identify the determinants of corruption across the full sample, low and lower middle‐income countries and, upper middle and high‐income countries. Our empirical findings show that financial development plays an important role in controlling the growth of corruption across the full sample, low and lower middle‐income countries and upper middle and high‐income countries. Similarly, per capita income has a significant positive impact on control of corruption in upper middle and high‐income countries, while education plays a similar role in low and lower middle‐income countries. On the contrary, the per capita income, trade openness, government expenditure, political rights and civil liberty are the major factors, which promote the growth of corruption in low and lower middle‐income countries, whereas trade and civil liberty play the same role in high‐income countries. Given these findings, our study makes number policy recommendations and adds new knowledge to the empirical literature.

Date: 2021
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