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Corruption and economic growth, with a focus on Vietnam

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Abstract

Numerous studies have looked at the effect of corruption on economic growth and a common finding is that the former adversely affects the latter. Through regression analyses, we use recent data from Transparency International’s Corruption Perception Index (CPI) and the World Bank’s Governance Indicators for the 2000–2012 period to test the direct and indirect effects of corruption on GDP growth rate. Our findings confirm that corruption metes out important costs in terms of lower economic growth when the direct method is considered. However, the indirect method shows that the impact of corruption on growth through the human capital (education) and domestic investment channels is positive, whereas the impact of corruption on growth through the voice and accountability channel is negative and statistically significant. Using these results, we examine the costs of corruption for Vietnam. We show that, had the CPI levels improved by just one unit between 2000 and 2012, then the economy would have grown from an average of 6.73 % during this period to 6.94 %. If corruption levels had fallen one standard deviation (i.e., the CPI increased from 2.6 to 5.0), then Vietnam could have achieved a growth rate of 7.22 %. This illustrates the primary finding that corruption undermines economic performance.

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Notes

  1. A variable is said to be dependent when it changes in response to iterations of the value(s) of the independent variable(s).

  2. r denotes annual GDP growth rate. It is defined as follow: rGDP2000*(1 + r)13 = GDP2012 where GDP2000 and GDP2012 are real GDP in 2000 and 2012 respectively.

  3. The CPI and WGI (Control of Corruption index) have a correlation of 99 %.

  4. Hodge et al. [15] find that corruption does not have an impact on human capital.

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Acknowledgements

This article is an edited version of a paper presented at the 2014 Vietnam Economist Annual Meeting (VEAM) in Ho Chi Minh City on 24–25 June 2014 and the Costs of Corruption in Vietnam Research Symposium in Hanoi on 25–26 June 2014. The authors would like to thank the organizers and participants for their helpful comments. We also would like to thank Tran Anh Vu for his helpful research assistance of data preparation. Financial support from the UK Department for International Development (DFID)/Vietnam is also gratefully acknowledged. The usual caveat applies.

Author information

Authors and Affiliations

  1. Development and Policies Research Center (DEPOCEN), Hanoi, Vietnam

    Nguyen Ngoc Anh & Nguyen Ngoc Minh

  2. RMIT International University, Ho Chi Minh City, Vietnam

    Binh Tran-Nam

  3. University of New South Wales Australia, Sydney, Australia

    Binh Tran-Nam

Authors
  1. Nguyen Ngoc Anh
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  2. Nguyen Ngoc Minh
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  3. Binh Tran-Nam
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Corresponding authors

Correspondence to Nguyen Ngoc Anh or Nguyen Ngoc Minh.

Additional information

This article is an edited version of a paper presented at the 2014 Vietnam Economist Annual Meeting (VEAM), Ho Chi Minh City, 24–25 June 2014 and the Costs of Corruption in Vietnam Research Symposium, Hanoi, 25–26 June 2014. The authors would like to thank the organizers and participants for their helpful comments. We also would like to thank Tran Anh Vu for his contribution to the paper. Financial support from the UK Department for International Development (DFID)/Vietnam is also gratefully acknowledged. The usual caveat applies.

Appendix

Appendix

Table 7

Table 7 Instrumental variable regression – First stage model
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Anh, N.N., Minh, N.N. & Tran-Nam, B. Corruption and economic growth, with a focus on Vietnam. Crime Law Soc Change 65, 307–324 (2016). https://doi.org/10.1007/s10611-016-9603-0

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