Does corruption adversely affect economic growth in Tunisia? ARDL approach

Date02 January 2020
Publication Date02 January 2020
AuthorAnas Al Qudah,Azzouz Zouaoui,Mostafa E. Aboelsoud
SubjectAccounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime
Does corruption adversely aect
economic growth in Tunisia?
ARDL approach
Anas Al Qudah
Department of Finance and Banking, Yarmouk University, Irbid, Jordan
Azzouz Zouaoui
Department of Finance, King Saud University, Riyadh, Saudi Arabia, and
Mostafa E. Aboelsoud
Department of Economics, Faculty of Commerce, Suez Canal University, Ismailia,
Egypt and Department of Economics, Faculty of Business Administration,
Economics and Political Science, The British University in Egypt, Cairo, Egypt
Purpose This study aims to betterunderstand the phenomenon of corruption in Tunisia in relationto its
impact on economic development. The periodof study is 1995 to 2014. The auto-regressive distributed lag
(ARDL) model is adoptedto examine the existence of a long-term relationship betweenthe above-mentioned
variablesand also the direct and indirect consequences of corruption on economicdevelopment in Tunisia.
Design/methodology/approach The study uses a modern econometric technique to estimating the
long-term relationship (e.g. the co-integration) between corruption and economic development; using this
techniquealso allows us to investigate the impact of corruption on economic growth.
Findings The empirical results show thatcorruption has a negative effect on per capita gross domestic
product(GDP) in Tunisiafor the period under review.This effect is described as a direct effect of corruption in
the long term; specically, declinesare observed in per capita GDP, over the long run, by almost 1 per cent,
following a 1 per cent increase in thelevel of corruption. The results also show that corruption has indirect
effects via transmissionchannels, such as investment in physical capital, which is positivelysignicant in the
presence of corruption. The same observation is made at the level of government expenditure during the
previous year, while for those of the current year,the coefcient becomes negative but not signicant. With
respect to humancapital, the impact of corruption on education expendituresis insignicant.
Originality/value The paper begins with an overview of previous literature in this area. Given the
nature of corruptionand the differences in the meanings attributed to it, from one country to anotherand from
one cultureto another, the paper moves on to study the impact of corruption in Tunisiaas a case study for one
country with one socio-cultural environment. The authors then propose several methods and possible
solutions,which could be implemented to deal with this problem.
Keywords Economic growth, Tunisia, Corruption, ARDL, Economic development
Paper type Research paper
1. Introduction
Corruption does not chose a specic culture or country. Rather, its reach is global, and it
continues to spread. The World Bank Institute estimates that, every year, more than US
$1.5tn is paid in bribes, worldwide, and the annual cost of corruption to the developing
world is approximately US$80bn. Corruption signicantly deters market development,
discourages investment, increasesuncertainty and the cost of conducting business, reduces
Journalof Money Laundering
Vol.23 No. 1, 2020
pp. 38-54
© Emerald Publishing Limited
DOI 10.1108/JMLC-12-2018-0076
The current issue and full text archive of this journal is available on Emerald Insight at:
competitiveness,undermines the rule of law and weakens the institutional foundationsupon
which economic growth depends. Increased public attention to the issue of corruption and
growing concern among citizens and governments seeking solutions to the problem have
spawned new avenuesof inquiry (Group, 2017).
Growth theories do not reston an agreed unique set of factors. Recent economic literature
has suggested that institutionalelements, such as corruption, bureaucracyand monopolistic
industries, constitute important constraints to the economic development of poor nations
(Al-Haddad and Whittington, 2019;AboElsoud, 2018;Ackerman, 2013;Méndez and
Sepúlveda, 2006). Older, classicalwriting on the topic has acknowledged the inuence these
elements have on economicdevelopment.
Studies on the impact of corruption indicate that its effects tend to reverberate
throughout an economy, rather than being conned to specic corruption-based
transactions. Mauro (1995) demonstrates that the negative associations between corruption
and investment, and corruption and growth, are signicant in both a statistical and
economic sense. In an empirical example of Bangladesh, he notes that were this country to
improve the integrity and efciency of its bureaucracy to the level of that of Uruguay, its
investment rate would rise by almost ve percentage points and its yearly gross domestic
product (GDP) growthrate would rise by over half a percentage point.
Concerns over weaker development processes in some countries have increased in the
recent years. Anecdotal evidencesuggests this widespread concern stems from, and focuses
on, the resulting distortion and disturbances that are the consequences of corruption. It is
against this background that the World Bank, the International Monetary Fund, the
Organisation for Economic Cooperation and Development and other non-governmental
organisations have worked together to set strategies to ght corruption, especially in
affected developingcountries.
This study focusses on the case of Tunisia.Its primary objective is to better understand
the phenomenon of corruption in that country. Whereas,previous studies have attempted to
calibrate corruption in Tunisia corruption; in Tunisia, none explains its nature, in that
country and how its manifestation has frustrated Tunisias economic development. This
study adopts the auto-regressive distributed lag (ARDL) model to specically investigate
and analyse the impact of corruption on economic growth in Tunisia. ARDL is a new
approach used to examine the existence of a long-term relationship between economic
growth and corruption and the direct and indirect consequences of corruption on Tunisias
economic development.
This study is organised into ve sections, as follows: the current section briey
introduces the aims and importance of the study. Section 2 covers its theoretical and
empirical considerations. It also discusses the nature of corruption and its impact on the
country at the macro level and the contradictions of its positive and negative impacts on
economic development. Section 3 introduces the research design and the model used to
empirically test the research propositions. Section 4 presents the research methodology,
descriptive analysisand a discussion of the data. Section 5 concludes the research.
2. Research background and literature review
The economic impact of corruption has been a controversial subject for a long time. For
example, it has been argued that poor regulation, corruption and weak institutions are
detrimental to economic growth and, therefore, development, per se Zouaoui et al. (2018),
RoseAckerman and Palifka (2016),Treisman (2000),Tanzi (1998) and Mauro (1995). The
emphasis is these studies is that corruption and poor regulations might discourage private
and foreign investmentby raising the cost of doing business, or by injecting uncertaintyinto

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