Abstract:
This study empirically examines the impact of corruption on the savings rate. It is an accepted fact that setting aside a portion of production means creating savings and converting them into productive capital to maintain the existing level of welfare and achieve a higher level of welfare, which is absolutely essential. In other words, even if a society wants to remain in its current position and not suffer a decrease in welfare, saving is necessary. Savings depend on two categories of factors: 1- Motivation to save 2- Ability to save. There are reasons why corruption eliminates many of these motivations and weakens the ability to save. Among others, corruption can lead to a reduction in savings by increasing capital flight, decreasing economic growth, increasing inflation, increasing income inequality, reducing domestic and foreign investment, etc. Therefore, given the importance of the subject of savings on one hand and the existence of evidence and theories regarding the negative impact of corruption on savings on the other hand, this study investigates the impact of corruption on savings using panel data models. In this study, two equations are estimated: one examines the impact of corruption on the gross domestic savings rate using a sample of 100 countries, and the other studies the impact of corruption on the gross national savings rate using a sample of 104 countries. The index used in this research as a representative of the corruption level is the Corruption Control Index published by the World Bank, and the period under investigation is 1996 to 2009. The results obtained confirm the main hypothesis of this research, meaning that a higher level of corruption, while other conditions remain constant, leads to a decrease in the savings rate (domestic and national).
Machine summary:
The results obtained indicate confirmation of the main hypothesis of this research, meaning that a higher level of corruption, while other conditions remain constant, leads to a decrease in the savings rate (domestic and national).
Therefore, given the importance of the subject of savings on one hand, and the existence of evidence and theories based on the negative impact of corruption on savings on the other hand, in this study we examine the manner and extent of the effect of corruption on the savings rate using panel data models.
Regarding the reason why "higher levels of corruption reduce economic growth," reference should be made to a set of studies conducted by the World Bank, which briefly mention the following causes for the reduction in growth due to the increase in financial corruption in countries: 1 they mention: 1) The deterrent role of corruption on investment and economic activities of the private sector leads to a reduction in production and incomes and an increase in government expenditures.
In another study, Mushfiq Oshwalain (2008), by using panel information related to 53 to 100 countries over a period of 10 years, has provided evidence that corruption has a negative effect on the gross national savings rate.
He also provides evidence that corruption affects the relationship between savings and the key factors influencing it, including income level, economic growth rate, and the tax-to-GDP ratio.
The empirical results of this study indicate a positive and significant effect of the corruption perception index (reduction of administrative corruption) on the national savings rate.
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