Long-Run Associations and Short-Run Dynamics Between Corruption and Inflation: Examining Social Unsustainability for the Panel of Countries

Introduction

Corruption or rent seeking attitudes should not be present and influence economic activities, besides others, in a holistic economy as it destroys the supply channel and creates unnecessary demands that puts pressure on price level and real income of the individuals and countries. It in turn leads to widening income gaps across classes and finally leads to social unsustainability. But the economies of the world today are not in the holistic state as their agents are more concerned with their private benefits, not with the social benefits. There is a gap of attitudes between the individuals and the society. The crisis is not confined to a particular country or regions but it has spread across the countries or regions through the channel of globalization. Controlling corruption is thus a challenge to the state operators to restore and maintain good governance. To quote Kofi Annan, the former Secretary General of UN, ‘good governance is perhaps the single most important factor in eradicating poverty and promoting development’. An economy may not require effective governance in its early stages of developments because of the closed structure as well the small areas of economic activities. The importance of governance is felt relevant in the early 1990’s after the heightened efforts of bringing all the economies beneath the cover of single umbrella-the global village. The opening up of the doors of most of the countries has led to cross border flow of goods and services. The result of this linkage requires good governance as the precondition. Managing good governance was, therefore, a challenge to all the heads of the nations so as to sustain in the competitive world.

The publication of Worldwide Governance Indicators initiated by Kaufmann and Kraay (1999) and later assisted by Pablo Zoido and Massimo Mastruzzi as World Bank Development Research Group made major contributions to the development and updating of the quantifications of the normative structures of good governance. The data generating process has started from 1996 till date on six governance indicators through several surveying organizations around the world. Control of corruption has been one of them the World Bank has estimated so far. There have been a series of studies by Kauffman et al (1999a, 1999b, 2002, 2004, 2005, 2007b, 2009, 2010) on different aspects of estimations of six governance indicators including control of corruption that impacted the academic world in administrative sciences in a greater way.Besides, Transparency International has been continually putting efforts upon estimating magnitudes of corruption in different countries and making rankings of different countries in this regard. The countries with top ranks in low corruption have high values of the estimated figures of control of corruption and vice-versa.