Corruption, Governance and Sustainable Development: A Panel Data Analysis

Abstract

Sustainable development is a new and emerging concept of development. It differs from other indices of human development that ignore environment. It has three dimensions. They are economy, society and environment. It encompasses welfare of present generations without compromising the ability of future generations. The foremost objective of this study was to construct a sustainable development index by using Principal Component Analysis (PCA) method for 58 developed and developing countries in the period of 2000-2015 and then investigated the determinants of corruption, determinants of governance and determinants of sustainable development. In this study, thirty nine indicators from society, economy and environmental dimensions were selected. The index value ranges from 0 to 1, where 0 shows low sustainable development and 1 shows high sustainable development. The data of indicators used in sustainable development index was taken from World Development Indicators (WDI) and United Nations Organization Statistics (UNO Stat). Corruption was measured by Corruption Perception Index (CPI) and its data was taken from Transparency International (TI). Governance index was measured by four indices of governance by using PCA method. They were regulatory quality, political stability, government effectiveness and voices and accountability. The data of governance index was taken from World Governance Indicators (WGI). The determinants of corruption were explored against governance index, sustainable development index and other control variables. Panel Ordinary Least Squares (POLS) technique was used for exploring the determinants of corruption, determinants of governance and determinants of sustainable development. Further, removing endogeneity and heterogeneity from the model, System Generalized Method of Moments (GMM) and difference GMM estimation technique was used. The results indicated that sustainable development index, governance index, democratic accountability, law and order and other control variables were significant and have negative impact on corruption. The determinants of governance and its components were checked against corruption, sustainable development, law and order and democratic accountability. The results indicated that corruption has negative, while sustainable development, law and order and democratic accountability have positive impact on governance and its components. The determinants of sustainable development were investigated through corruption, governance, democratic accountability, law and order and other control variables for panel of overall economies, panel of high income and panel of low income viii

economies. The results indicated that corruption has negative impact on sustainable development, while governance index and its components, law and order, democratic accountability and political globalization have positive impact on sustainable development. The policy implications from empirical findings of this study are as follows. For reducing corruption, it should improve sustainable development, governance, democratic accountability and law and order. For improving governance, the sustainable development, democratic accountability and law and order should be better, corruption should be reduce for good governance. Finally, for improving sustainable development, corruption should be reduce and governance, democratic accountability, law and order and political globalization should be improve. The future research will be targeted to construct a sustainable development index for all countries of the world and will analyze the impact of corruption and governance on sustainable development.