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Impact of Corruption and Institutional Development on Economic Growth in Emerging Economies

Impact of Corruption and Institutional Development on Economic Growth in Emerging Economies

1. Introduction

This article examines the impact of corruption and institutional development on economic growth in emerging economies. The introduction provides background information on the topic, including the purpose and scope of the study. Chapter 2 will explore the relationship between corruption and economic growth. It will define corruption and discuss the different types of corruption. The section will also examine the effects of corruption on economic growth and will include case studies to illustrate these effects. Chapter 3 will focus on the importance of institutions in economic growth. It will explore the factors influencing institutional development and the role of institutions in promoting economic growth. Case studies will be included to provide examples of the relationship between institutional development and economic growth. Chapter 4 will examine the interplay between corruption and institutional development. It will discuss the impact of corruption on institutional development and the impact of institutional development on corruption. Case studies will also be included to demonstrate the relationship between corruption and institutional development. Chapter 5 will specifically look at economic growth in emerging economies. It will discuss the characteristics of these economies and the challenges and opportunities they face in achieving economic growth. The role of corruption and institutional development in emerging economies will also be explored, with case studies provided as examples. Chapter 6 will discuss strategies for combating corruption and promoting institutional development. It will explore the use of legal and regulatory frameworks, transparency and accountability measures, and international cooperation and support. Case studies will be provided to illustrate these strategies. The conclusion will summarize the findings of the study and will discuss the implications for policy and practice. Recommendations for future research will also be provided.

1.1 Background

Corruption is usually associated with the action of soliciting or offering a bribe. The action has deep roots in the history of many countries, and now it doesn’t require more evidence to demonstrate this argument because the link between corruption and economic development is real. The level of development in different countries is influenced by the level of corruption. Low levels of corruption will be associated with higher economic development levels, and higher levels of corruption will be associated with lower levels of economic development. So the researchers and policymakers are interested to find the relationship between corruption and economic development. But the corruption and economic development is a game theory process, and it has been proved that the corruption and economic development is a Kahn’s in the game theory to identify the relationship between corruption and economic development. Kahn argues that corrupt agents can enforce inefficient trades that would otherwise not have occurred and that they would enforce even more efficient trades. This relationship between the corrupt and the principal is based on Gardner and Varez (2000). Even if the agents would like to make a trade, it does not mean it will be successful as the corrupt agents who attempt to extort or use the fear of future harm from the principal in a repeated interaction. The corruption tends to increase the costs and risks of the corruption transaction, and the people even invest their resources.

1.2 Purpose

The purpose of the study is to provide an in-depth analysis of how corruption and institutional development impact economic growth in emerging economies. The aim is to examine and understand how each variable, in terms of corruption and institutional development, affects economic growth. In the study, the case of emerging countries was defined based on the classification by the International Monetary Fund of low-income developing countries, lower-middle-income developing countries, and upper-middle-income developing countries. The study hopes to add to the existing literature in several ways. First, this paper studies both short-term and long-term growth effects by using the corruption perception index and corruption control, as the literature says people’s view of corruption and actual corruption level are distinct. This paper helps to examine and test the theoretical predictions of how corruption affects economic growth and determine which side of the economic literature is right. Also, I hope to exploit them as robust instrumental variables to account for potential endogeneity in the corruption-growth regressions, following the literature using standard Ordinary Least Squares (OLS) technique. Secondly, a study that employs dynamic panel Generalised Method of Moments (GMM), which is more updated and sophisticated in econometrics, is rare. Thirdly, most of the studies involve cross-section or panel data with a very dispersed number of N (country) and T (time), which might cause a significant omitted variable bias problem, and researchers concentrate mainly on advanced countries, with very few on the emerging countries. That is, these studies are irrelevant to a large number of countries in the world. This paper researches only on the emerging economies and shows the new evidence of how different levels of corruption matter to the economic growth in these countries. It would be very interesting and meaningful to have a comparative categorization of different levels of countries for the corruption that influences economic growth.

1.3 Scope

Emerging economies refers to a group of countries that are growing at a substantial rate, generally involving industrialization. In this essay, the scope is focused on the impact of corruption and institutional development on economic growth in emerging economies. From political science, scholars have defined corruption as the abuse of public power for private gain. It is a major obstacle to democracy and the rule of law. Although corruption varies from one level of government to another, many cases show that historically, political or ‘grand’ corruption has been the principle type. And it is precisely this ‘grand’ corruption, of manipulating policies, politics and the economy, that has the greatest impact on the economic growth. The scope is also extended to the definition of emerging economies. Tremendous achievements in reducing poverty have been made by some countries identified by the World Bank as emerging economies. Typically, an emerging economy will have a number of characteristics such as: a medium income level; rapid economic growth; high levels of investment; a process of industrialization and high levels of urbanization and structural changes. However, it should be noted that there is no globally consistent definition of what constitutes an emerging economy. The literature of the topic mainly investigates on the effects of corruption on the growth rate of these countries. Such types of studies use both cross-country data and panel data. Cross-country data is popular in the academic field, but as Professor Jin’ai Dai (2013) states, “a fatal flaw is the inability to address individual heterogeneity”. This means that the study will not be able to isolate the impact of corruption due to the overall differences in countries. On the other hand, panel data allows for individual heterogeneity and it tends to be used less due to the larger demand on data availability. Despite this, Professor Jin’ai Dai believes panel data approach is more effective and accurate. He furtherings his argument by claiming that “panel data allows for more sophisticated models” and “the ability to address individual heterogeneity make estimation more precise”.

2. Corruption and Economic Growth

2.1 Definition of Corruption

2.2 Types of Corruption

2.3 Effects of Corruption on Economic Growth

2.4 Case Studies on Corruption and Economic Growth

3. Institutional Development and Economic Growth

3.1 Importance of Institutions in Economic Growth

3.2 Factors Influencing Institutional Development

3.3 Role of Institutions in Promoting Economic Growth

3.4 Case Studies on Institutional Development and Economic Growth

4. Relationship between Corruption and Institutional Development

4.1 Interplay between Corruption and Institutional Development

4.2 Impact of Corruption on Institutional Development

4.3 Impact of Institutional Development on Corruption

4.4 Case Studies on the Relationship between Corruption and Institutional Development

5. Economic Growth in Emerging Economies

5.1 Characteristics of Emerging Economies

5.2 Challenges and Opportunities for Economic Growth in Emerging Economies

5.3 Role of Corruption and Institutional Development in Emerging Economies

5.4 Case Studies on Economic Growth in Emerging Economies

6. Strategies for Combating Corruption and Promoting Institutional Development

6.1 Legal and Regulatory Frameworks

6.2 Transparency and Accountability Measures

6.3 International Cooperation and Support

6.4 Case Studies on Strategies for Combating Corruption and Promoting Institutional Development

7. Conclusion

7.1 Summary of Findings

7.2 Implications for Policy and Practice

7.3 Recommendations for Future Research

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