This paper utilizes panel unit root, panel unit cointegration, and panel error correction model techniques to examine the corruption-economic growth nexus in a panel of four BRIC countries (Brazil, Russia, India, and China) over the 1995 to 2009 period. The empirical results show that there is a significant positive relationship between corruption and economic growth in the short run. However, in the long run, corruption is no longer the most important factor that affects economic growth. Instead, foreign direct investment and the degree of economic openness are the key factors that influence a country's economic growth.
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Corruption is a global issue faced by all countries, governments, and communities. There is not a single description for corruption as it takes on different shapes accordingly to specific culture, ethnicity, government type and scale, economic development, and public behavior. For example, Transparency International (TI) defines corruption as "the misuse of entrusted power for private benefit," International Monetary Fund (IMF) describes corruption as "the abuse of public authority or trust for private benefit," and the Asian Development Bank (ADB) defines corruption as "the abuse of public or private office for personal gain." Jain (2001) further introduces three types of corruption phenomena that occur in a democratic nation. For example, grand corruption involves corruption among high level executives in government, legislative corruption involves corruption among representatives of the general public, and bureaucratic corruption involves corruption among government officials and staff. Regardless of its type, corruption hinders economic and social development, causes political instability and government inefficiencies, and deteriorates the close bond between a nation and her democratic ideals. In response, both emerging market economies and democratic developed countries have begun to seriously consider the social, political, and economic harm corruption brings, and to invest in resources to prevent and control corruption. Similarly, international organizations have also established various anti-corruption plans and departments for this cause. Among the anti-corruption organizations, the international non-government, global civil society organization, TI, stands out as one of the most influential and well-known entities.
While the effects of corruption can be clearly observed, they are often hard to quantify. Obtaining accurate information pertaining to corruption in specific nations is difficult, and quantifying the respective damage is less likely. Social and cultural differences, different standards and tolerance towards corruption also contribute to the complexity of formulating a standardized way to quantify corruption. However, several international organizations have attempted to create metrics to evaluate and quantify a nation's corruption. For example, TI created the Corruption Perceptions Index (CPI) and the Global Corruption Barometer (GCB); Business International came up with the Business International Index (BI); Political Risk Services, Inc. designed the International Country Risk Guide Index (ICRG); and World Bank developed the Governance Indicators. The CPI from TI is known for its accuracy and is currently the most frequently used method for measuring corruption. Following the CPI in popularity, is the World Bank's corruption index (Governance Indicators). In this study, Transparency International's CPI is used as the explanatory variable for its empirical study.
Recent global economic activity has been largely dominated by emerging market economies. The performance of Brazil, Russia, India, and China's economic markets have especially stood out among the others and are now known as the BRICs. In fact, Goldman Sachs' 2003 publication, Dreaming with BRICs: The path to 2050 projected that within the next forty years, based on population, productivity and capital, and the conventional economic growth model, the BRICs will have a combined economy larger than that of the G6 or the six major industrialized nations, including the United States, Japan, England, Germany, Italy, and France. …