The Impact of Corruption and Shadow Economy on the Economic and Sustainable Development. Do They “Sand the Wheels” or “Grease the Wheels”?

Răzvan Hoinaru, Daniel Buda, Sorin Nicolae Borlea, Viorela Ligia Văidean and Monica Violeta Achim
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Răzvan Hoinaru: School of Business and Management, Queen May University of London, London E1 4NS, UK
Daniel Buda: Department of Public Administration and Management, Babeş-Bolyai University, Cluj-Napoca 400132, Romania
Sorin Nicolae Borlea: Doctoral School of Economics, University of Oradea, Oradea 410087, Romania
Viorela Ligia Văidean: Department of Finance, Babeș-Bolyai University, Cluj-Napoca 400591, Romania
Monica Violeta Achim: Department of Finance, Babeș-Bolyai University, Cluj-Napoca 400591, Romania

Sustainability, 2020, vol. 12, issue 2, 1-27

Abstract: Having in mind the main debate “grease the wheels” vs. “sand the wheels”, the main objective of this study is to find the way in which corruption and shadow economy influence economic and sustainable development. A large cross-country database of 185 countries is used for the 2005–2015 time period. We find that corruption and shadow economy are poverty-driven diseases and they highly characterize low-income countries. Thus, the higher levels of corruption and shadow economy are correlated with low levels of economic and sustainable development. Then, the main contribution of this work consists of finding general and empirical evidence for the destructive role held by the corruption and shadow economy phenomena upon the economic and sustainable development of states. However, we also find some evidence that corruption can be also seen as a way to circumvent the law in order to achieve higher economic benefits and thereby to increase economic development. In addition, we find that economic and sustainable development in high-income countries is more strongly and negatively affected by the phenomena of corruption and shadow economy than in the case of low-income countries. Our research may have political implications for the government institutions that need to adopt the best-required policies, in order to boost economic and sustainable development. For low-income countries, we find some evidence for positive effects of corruption and shadow economy upon economic and sustainable development and the immediate practical implications are not to encourage but to effectively and strongly fight against these destructive phenomena and to find the proper channels to increase the institutional quality and to adopt the appropriate regulatory policies.

Keywords: corruption; shadow economy; economic growth (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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