Corruption in Transition Economies: Cause or Effect?

This paper investigates the empirical relationship between corruption, economic growth, and government spending in fourteen transitioning economies from 1995-2013. We find strong evidence of bilateral Granger causation between economic growth and corruption for the full sample but weaker evidence of such a relationship for four former Yugoslav republics. We also find bilateral Granger causality between government spending and corruption but a weaker unidirectional Granger causality from government spending to corruption in four former Yugoslav republics. Our results recommend caution when assuming that corruption is purely exogenous in empirical models.