The asymmetric influence of corruption on financial development: fresh evidence from BRICS economies

Abstract

Purpose This paper aims to assess the asymmetric impact of corruption on financial development in BRICS economies context. Design/methodology/approach The authors have adopted the novel panel non-linear autoregressive distributed lag (PNARDL) model of Shin et al. (2014), covering the period 1991–2018. Findings The findings confirm that corruption asymmetrically impacts financial development in BRICS economies. More precisely, long-run negative shocks of the control of corruption index have significant negative impacts on financial development. However, long-run positive shocks of the control of corruption index are insignificant. Moreover, both positive and negative shocks of corruption in short-run results are insignificant. Generally, the findings are robust having carried out several robustness checks and in favor of “sand in the wheels” hypothesis. Originality/value This study makes a novel contribution by developing insight on how corruption asymmetrically impacts financial development. To the best of the authors’ knowledge, this is the first attempt to use the PNARDL, which decompose the main independent variable (corruption) into positive and negative shocks. The PNARDL approach is a dynamic robust estimate that controls for the problem of endogeneity, which is a common phenomenon in such studies. Additionally, it is believed that the findings are important for policy makers, scholars and practitioners. Finally, the authors used the most recent available dataset covering the BRICS context.

Investigating the Nexus between Stock Market and Institutional Quality in Emerging Markets and Developing Countries: A Panel Data Analysis

“…Sufian et al (2017) explored the effect of country governance on financial development by covering different Islamic and conventional banks operating within the 19 countries Results of the estimations obtained by the authors establish that political stability, rule of law, government effectiveness, and regulatory quality negatively influence the development of conventional banks proxy by their efficiency. The study by Alsagr and van (2022) in BRICS countries, concluded that as for corruption, the effect is asymmetrical: some impact on the financial development of the BRICS economies is possible. More precisely, the long-term negative shocks of the control of corruption index have a significant negative impact on financial development.…”

Foreign Direct Investment, Public Sector Venality and Entrepreneurship Development in Developing Countries

“…Another view is that public sector corruption can discourage potential investors interested in investing in high-growth entrepreneurial companies (Ezebilo et al, 2019). This affects entrepreneurs because they require funds to expand their businesses (Alsagr and van Hemmen, 2021). Hence, it can be argued that corruption in most developing countries has retarded progress in entrepreneurship development.…”

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“…According to several studies, the main reason investors are hesitant to invest in a country with high levels of corruption is because of corruption. This, in turn, leads to a fall in the country's economic growth (Alsagr and van Hemmen, 2022). Furthermore, corruption has an impact on financial markets.…”