Does Political Corruption Affect Economic Growth in Transitional Democracies?

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Mohamed Waheed

Does Political Corruption affect Economic Growth in Transitional Democracies?

The call for democracy in the name of economic growth and prosperity has never been louder than it is today. Recent movements such as the “Arab Spring” are attempts to establish a democratic system of government in countries where authoritarians, bribery, and abject poverty are widespread. According Nye (2009), a professor of economics at Washington University in St. Louis, economic growth has a direct effect on the overall standard of living of the people in any country. Economic growth is often associated with a higher level of democracy (Kurzman, 2002). Organizations such as the United Nations support democratic movements across the world as democratic systems of governments are proclaimed to be transparent, promote civil rights and economic prosperity. For these reasons, countries embrace democratic systems of government, believing that democracy will help to eradicate corruption, which in turn supports economic growth. Nevertheless, the countries which embrace democracy are known as transitional democracies at the early stage of their development. Carothers (2000) defines transitional democracies as any nation moving away from authoritarian rule to a democracy. Wooten, (2007) also defines transitional democracies as those nations which have made a shift away from dictatorship towards democracy. Though both of the definitions are same, for the purpose of this paper, the former definition will be used throughout this paper. Transitional democracies take a long period of time to become a fully formed to enjoy the benefits of democracy (Barry et al., 2009). During this transitional period, countries experience tremendous economic challenges along with political corruption (Adhikari 2012). Similarly, organization such as the World Bank, the International Momentary Fund (IMF) and the United Nations (UN Convention on Corruption, 2003) view corruption as a major distraction for economic growth and a tax on society. Corruption has several forms and among them political corruption is the most detrimental to the nation and economic growth (Ebben et al., 2009). Nye, (1989) defines political corruption as a behavior which departs from the official responsibilities of a government post because of personal regard for monetary gains. However, this paper will go along with the definition forwarded by (Heidenheimer et. al., 1993). They define political corruption as “any transaction between private and public sector actors through which collective goods are illegitimately converted into private-regarding payoffs”. Political corruption includes nepotism (assigning government posts to the people who have a connection with politicians instead of as a result of their competence and merit), bribery (giving financial benefit or benefit in kind to change the behavior of a person in a public office (Nye, 1989)) and embezzlement (misappropriation of government resources for personal uses (Nye, 1989)). Political corruption is one of the major challenges faced by the transitional democracies. Therefore, scholars argue that it is a major obstacle for economic growth. That is, economic growth has a negative correlation with corruption, but a positive correlation with democracy (Assiotis et al., 2010). For example, stronger economic growth is seen in countries which have good governance and a higher degree of transparency (Nowak 2000). Higher economic growth means a higher standard of living. The economic growth, or the rate at which an economy grows, is universally measured using the concept of Gross Domestic Production (GDP) (Callen, 2012). According to the World Bank1, GDP is a percentage change in dollar value of goods and services a country produces from one year to another. If the value of goods and services produced by a country does not increase at a desirable rate, the country...
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