The Impact of Corruption on the Gdp Growth in Europe

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Proposal Master Thesis
The Impact of Corruption on the Economic Growth in European Union Countries

submitted by Rebeca Alambillaga Briz
Wittebollestraat 20-29 5046CE Tilburg The Netherlands r.alambillaga@outlook.com

University of Tilburg Master International Management Finance Department Faculty of Economics and Business Administration Supervisor: MSc L. Schäfer (Tilburg University) Dr. V.J.J. Wiegerinck (Tilburg University)

Tilburg, November 26, 2012

Table of Contents

1

Chapter 1: Introduction………………………………………….. 1.1 1.2 1.3 Background and Problem Statement ………………..… Research Questions …………………………………… Relevance ……………………………………………...

1 1 2 4

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Chapter 2: Theoretical Framework…………………………….. 2.1 2.2 Literature Review……………………………………... Contribution…………………………………………....

4 4 10 10 10 12 12 13 13 14

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Chapter 3: Research Methodology………...…………………… 3.1 3.1.1 3.1.2 3.1.3 3.2 3.3 Framework of the Model ………………………........... Independent Variable………………………………..... Depending Variable…………………………………… Control Variables…………………………………….... Design ………………………………………………… Data Collection………………………………………….

4 5

Bibliography……………………………………………………… Appendix…………………………………………………………..

15 19

Chapter One Introduction 1.1 Background and Problem Statement Since 1960, researchers (Leff 1964; Huntington 1968) started to study the corruption phenomenon. This field of research gained an increasing amount of interest due to the large consequences that corruption has on political systems, institutions and nations. Beside its influence on transparency of political decision making (Lindstedt 2010), when looking from an economic perspective, it is relevant to analyze the impact of corruption on the economic growth of a nation. Both in qualitative and quantitative terms, it is a challenging question how to define corruption. Bayley (1966) defined it as “abuse of authority for private gain, among the world’s oldest practices and a fundamental cause of intrastate conflict, providing a focal point for many social groups’ grievances against governments.” The World Bank defines corruption as “the single greatest obstacle to economic and social development. It undermines development by distorting the rule of law and weakening the institutional foundation on which economic growth depends”. Also in large private enterprises, corruption can be found in for example procurement, or even in hiring new employees. It also exists in private activities regulated by the government (Tanzi 1998). Furthermore, corruption can also be defined as the diversion of public resources to nonpublic purposes (Werlin 1973). In this study, the definition of Bayley is used to describe corruption (the abuse of public power for private benefit). Public power usually refers to institutional means of exploiting authority and bureaucratic influence. Corruption is perceived as especially worrisome in less developed countries, while corruption in developed countries is believed to be under control. However, a World Bank Institute study estimates the costs due to corruption in both rich and developing countries to be $1000 billion a year (World Bank, 2004). Therefore, corruption in developed countries turns out to be of significant importance. In the last decade there has been a growing interest in understanding the relationship between corruption and economic growth. Several researchers investigated this topic, for instance, crosscountries studies were made, which estimated the impact of corruption on GDP growth. Podobnik (2008) measured this impact by taking in his sample all countries in the world. There are also several studies with a focus on developing countries, and specific regions as Asia, or Africa. However, there is a lack in the amount of studies in literature about the effects of corruption in developed countries. When looking at Europe, there are only a few studies paying attention to this area (Podobnik 2008). The principal motivation of the present work is...
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