The Implications of Inequality for Corruption: Does the MENA Region Stand Out?

Vladimir Hlasny

No 1417, Working Papers from Economic Research Forum

Abstract: If political connectedness and ability to get ahead through corruption are latent dimensions of multidimensional inequality, then corruption could be the missing piece in the Arab inequality puzzle. In fact, the positive inequality–corruption link holds in a number of developed countries, but not in the MENA or other emerging, resource-reliant countries. This is confirmed using graphical and statistical analysis, both in levels and in changes. An increase in inequality has the expected detrimental effect on corruption in OECD countries, particularly those with state-led non-liberal markets. The relationship is weak or negative in liberal-market economies. Concentration of economic power appears to translate into political power in coordinated and networked societies while the link vanishes in societies where most transactions are done at arm’s length. Inequality affects corruption negatively in emerging and resource-extracting economies, and notably the MENA. Instead of following the trends among the comparative upper-middle income countries, MENA exhibits the trends seen among less developed economies, an indication of a variety of the Dutch disease. We do not find an inequality–pilferage trap across developing countries. Successful development and building of institutions initially raise inequality as growth is spread unevenly throughout society. The inequality–corruption link starts out negative and finishes positive across successive stages of development. This implies that, beside improving laws and punishing corrupt policymakers, countries should manage economic distribution, not just out of concern for social justice but also to lay down conditions for healthy political and economic contestation

Pages: 47
Date: 2020-11-20, Revised 2020-11-20
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Journal Article: The Implications of Inequality for Corruption: Does the MENA Region Stand Out? (2023)
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