Corruption Perceptions

Blog 9: Good Governance

            In order to test the relationship between good governance and economic development, I tracked data for 167 nations for which data was available. Based on my statistical research, I found that there is a positive linear correlation between good governance and economic development. In order to measure levels of good governance, I chose to use the Corruption Perceptions Index created by Transparency International. This index gives a score, ranging from 1 to 10, to each country, where a score of 1 indicates high levels of corruption and 10 indicates low levels (Transparency International 2011). To measure levels of economic development, I gathered data for PPP-equalized GDP per capita from the World Development Indicators database (World Bank 2011). All of this data is from the year 2011, the most recent year possible.

            The Corruption Perceptions Index is an effective measurement of good governance, because it agglomerates scores dealing with all aspects of corruption, from humanitarian aid to education (Transparency International 2011). The presence of corruption is a very strong indication of a lack of good governance, and the scale of this index makes it useful in statistically measuring the lack of good governance’s effect on economic development. Similarly, the measure of per capita GDP is a good indication of economic development levels, because it gives a concrete idea about the total economic power of a nation as well as the economic well-being of the populace.

            The graph produced by this data shows a clear linear relationship linking good governance with strong economic development. This relationship begins in a tight cluster around the nations with high corruption levels and lower economic development levels, and spreads out as it approaches those nations with lower corruption levels and higher economic development. Despite this change in tightness in the graph, it is still tight enough throughout to clearly demonstrate a relationship between the two variables. There are some evident outliers—countries which have high corruption as well as high economic development, as well as countries which have low corruption and low economics. Even these outliers, however, are consistent with the theory that good governance affects economic development. The first group of outliers is made up for the most part of oil nations, Kuwait being a prime example. The second group is made up of mostly island nations that are former British colonies.      

            It makes sense that this correlation should exist. In terms of causation, we may say that corruption discourages honest business practice and capitalism, which would promote economic growth. Instead, in corrupt nations, monetary gain is achieved through graft, embezzlement, and theft. This promotes a culture in corrupt nations that discourages correct business practice, which decreases total economic development and increases inequality. This theory remains true even considering the two types of outliers described above. Oil nations, due to their abundant natural resources, have naturally higher GDP to begin with. Thus, the effect of graft on their economy is minimized, even though it still occurs. For island nations, colonial legacy and lack of resources has left them with lower economies, even though their governments are relatively non-corrupt.

            The bottom line: there is a clear relationship between good governance and economic development. Just take a look at the graph.

Graph would not post.

 REFERENCES

Transparency International. 2011. Corruption Perceptions Index. http://cpi.transparency.org/cpi2011/results/ (accessed November 17, 2012).

World Bank. 2011. GDP per capita (current US$). http://data.worldbank.org/indicator/NY.GDP.PCAP.CD (accessed November 17, 2012).