Religion as a Determinant of Corruption: Comparative Evidence from OPEC and OECD Countries

Article excerpt

The analysis of corruption in international business is a relatively new but very important phenomenon. Many studies have attempted to capture the reasoning behind the corruption and its incidence on economy. It has been shown that both economic and social characteristics are significant factors for the development of corruption in business transaction and it suggests that corruption is a product of social and institutional facets of a country. In this study we focus on a specific, closely related group of countries in order to isolate some variables that are significant determinants of corruption. The OPEC countries are unique in a sense, because oil is a large part of the economy for these countries, and population of these countries are dominated mostly by one religion, Islam. Similarly, selected OECD countries are dominated by Christianity. This research work examines empirically the role of the dominant religion as a determinant of corruption in those countries.

Introduction

Over the last several decades, technological advances along with the development of free trade have increased the reliance of countries on foreign trade. Investors look abroad for opportunity with far more comfort, yet uncertainty still exists. Uncertainty, or the risk associated with investing abroad, institutively has a negative effect on investment. The economic conditions and economic environment in a foreign country can affect the economy of the home country and subsequently the perception of risk associated with that country. A large concern for investors is the existence of corruption and lack of control an investor has on corruption in a foreign country. Yet, there exists a great deal of doubt as to what extent corruption affects a particular country.

For the purpose of our study, corruption is "the misuse of public power for private benefit." Public power usually refers to institutional means of exploiting position and bureaucratic influence. The relevant institutions and the individuals that comprise those institutions derive private benefit by manipulating those at the mercy of the public power. Corruption negatively affects a country, even if it is only through perception. The perceived existence of corruption often creates political unrest and citizen dissatisfaction.

However, there is no definitive answer on the effects of corruption on economic growth. Most would agree that corruption negatively affects an economy. Corruption on its own does not impede growth; instead corruption leads to the distortion of market signals that interfere with free market principles. This causes a misallocation of resources in the market. Unfortunately, the losses incurred due to this effect of corruption are hard to measure and the literature on the subject fails to pinpoint the adverse effects of corruption on growth. In fact, some studies have even shown that corruption positively effects growth through the efficiency it creates in otherwise overly bureaucratic societies. (Svensson,2005).

Corruption does affect the foreign investment in a country and ultimately the prosperity of a country. Again, investors have to account for the perceived corruption within a country and the costs that are connected to the corruption. This is especially true for companies investing in countries with high or volatile levels of corruption because of the greater degree of uncertainty. Though many studies look at the roots of corruption, it is difficult to determine why corruption is so prevalent in certain situations. The roots of corruption are planted far in history, so human nature certainly plays a large role in the existence of corruption. However, it is unclear why corruption is so much worse in one situation than it is in another (Lambsdorff, 2007).

Understanding the impact of corruption is important because it helps us decide why and how we need to fight corruption. Equally important is to understand what factors most contribute to corruption. …