The interrelationship between corruption and the shadow economy: a perspective on FDI and institutional quality
Purpose – This study explores the relationship between corruption and shadow economy (SE) by examining the potential links and interactions between these two phenomena to see whether it is a one-way or two-way relationship and a complementarity or substitution linkage. Design/methodology/approach –...
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| Format: | Article |
| Language: | English |
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Emerald Publishing
2023-11-01
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| Series: | Journal of Economics and Development |
| Subjects: | |
| Online Access: | https://www.emerald.com/insight/content/doi/10.1108/JED-03-2023-0044/full/pdf |
| _version_ | 1827763027484606464 |
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| author | Giang Ngo Tinh Nguyen Xianmin Liu |
| author_facet | Giang Ngo Tinh Nguyen Xianmin Liu |
| author_sort | Giang Ngo Tinh Nguyen |
| collection | DOAJ |
| description | Purpose – This study explores the relationship between corruption and shadow economy (SE) by examining the potential links and interactions between these two phenomena to see whether it is a one-way or two-way relationship and a complementarity or substitution linkage. Design/methodology/approach – Using a dataset comprised of 145 countries all over the world between 1996 and 2015, the authors apply the simultaneous two-step system generalized method of moments approach to address the research question. Findings – The study findings support a positive bidirectional relationship between corruption and SE. As such, this study has provided evidence supporting the complementarity association. In the authors' further analyses, they point out that several factors can moderate this positive bidirectional linkage. In particular, while Foreign Direct Investment (FDI) inflows strengthen it, it is weakened by other institutional factors such as civil liberties and political rights. Finally, by splitting the full sample into three different subsamples and then examining countries at varying stages of economic development, the authors can gain valuable insights into the evolving dynamics of the relationship between corruption and SE. Specifically, while the authors observe that the positive direction of corruption to SE remains unchanged across different nations, they observe that the positive influence of SE on corruption is strongest among developed economies only. Practical implications – The study findings provide an important policy implication. This study highlights the synergistic relationship between SE and corruption, indicating that reducing corruption will reduce the size of the SE. Consequently, this reduction in the SE can mitigate the adverse effects of corruption on economic development. Originality/value – This paper is among the first empirical studies that critically investigate the interrelationship between SE and corruption. It then explores how this two-way linkage is conditional on some factors, such as economic development levels and institutional quality indicators. |
| first_indexed | 2024-03-11T10:45:23Z |
| format | Article |
| id | doaj.art-da81a5e10a024d8982f7bc6697d7adc5 |
| institution | Directory Open Access Journal |
| issn | 1859-0020 2632-5330 |
| language | English |
| last_indexed | 2024-03-11T10:45:23Z |
| publishDate | 2023-11-01 |
| publisher | Emerald Publishing |
| record_format | Article |
| series | Journal of Economics and Development |
| spelling | doaj.art-da81a5e10a024d8982f7bc6697d7adc52023-11-14T07:26:45ZengEmerald PublishingJournal of Economics and Development1859-00202632-53302023-11-0125434936410.1108/JED-03-2023-0044The interrelationship between corruption and the shadow economy: a perspective on FDI and institutional qualityGiang Ngo Tinh Nguyen0Xianmin Liu1The University of Newcastle, Callaghan, AustraliaQueen Mary University of London, London, UKPurpose – This study explores the relationship between corruption and shadow economy (SE) by examining the potential links and interactions between these two phenomena to see whether it is a one-way or two-way relationship and a complementarity or substitution linkage. Design/methodology/approach – Using a dataset comprised of 145 countries all over the world between 1996 and 2015, the authors apply the simultaneous two-step system generalized method of moments approach to address the research question. Findings – The study findings support a positive bidirectional relationship between corruption and SE. As such, this study has provided evidence supporting the complementarity association. In the authors' further analyses, they point out that several factors can moderate this positive bidirectional linkage. In particular, while Foreign Direct Investment (FDI) inflows strengthen it, it is weakened by other institutional factors such as civil liberties and political rights. Finally, by splitting the full sample into three different subsamples and then examining countries at varying stages of economic development, the authors can gain valuable insights into the evolving dynamics of the relationship between corruption and SE. Specifically, while the authors observe that the positive direction of corruption to SE remains unchanged across different nations, they observe that the positive influence of SE on corruption is strongest among developed economies only. Practical implications – The study findings provide an important policy implication. This study highlights the synergistic relationship between SE and corruption, indicating that reducing corruption will reduce the size of the SE. Consequently, this reduction in the SE can mitigate the adverse effects of corruption on economic development. Originality/value – This paper is among the first empirical studies that critically investigate the interrelationship between SE and corruption. It then explores how this two-way linkage is conditional on some factors, such as economic development levels and institutional quality indicators.https://www.emerald.com/insight/content/doi/10.1108/JED-03-2023-0044/full/pdfSECorruptionTwo-way linkageSimultaneous equationInstitutional quality |
| spellingShingle | Giang Ngo Tinh Nguyen Xianmin Liu The interrelationship between corruption and the shadow economy: a perspective on FDI and institutional quality Journal of Economics and Development SE Corruption Two-way linkage Simultaneous equation Institutional quality |
| title | The interrelationship between corruption and the shadow economy: a perspective on FDI and institutional quality |
| title_full | The interrelationship between corruption and the shadow economy: a perspective on FDI and institutional quality |
| title_fullStr | The interrelationship between corruption and the shadow economy: a perspective on FDI and institutional quality |
| title_full_unstemmed | The interrelationship between corruption and the shadow economy: a perspective on FDI and institutional quality |
| title_short | The interrelationship between corruption and the shadow economy: a perspective on FDI and institutional quality |
| title_sort | interrelationship between corruption and the shadow economy a perspective on fdi and institutional quality |
| topic | SE Corruption Two-way linkage Simultaneous equation Institutional quality |
| url | https://www.emerald.com/insight/content/doi/10.1108/JED-03-2023-0044/full/pdf |
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