Economics of Corruption: Demand Side Case of Western Balkan Countries

Abstract

Corruption is a very negative phenomenon, which distorts markets and harms economic growth. Corruption has its side of supply and demand. Both supply and demand for corruption are influenced by many factors. The purpose of this article is to identify some macroeconomic and institutional factors that lead to the demand for corruption in the Western Balkans. The Corruption Perception Index and Control of Corruption index are used as measures of corruption, therefore in this paper two models are built, where independent variables are real income per capita, inequality gap, unemployment rate, rule of law, and government efficiency. A panel model, with data for the period 2012-2022 is used to identify the most important variables affecting corruption in the Western Balkans. The results show that the index used to measure corruption affects the statistical significance of the variables, with inequality gap and rule of law being significant in both models. The identification of the factors can serve the governments of these countries to design policies and adopt strategies that will reduce the involvement of people in corrupt practices.