Government Regulations of Business, Corruption, Reforms, and the Economic Growth of Nations

Abstract

The present study examines the following claims: (1) nations with more versus less rules nurture growth in corruption, (2) nations with lighter versus heavier rules exhibit lower levels of corruption, (3) lighter versus heavier rules relates to larger formal economies. Using data from the Doing Business annual reports, Transparency International (TI), and national GDP per capita data, the study examines lagged relationships of the three claims. The first claim is bunk: no significant negative relationship occurs for the levels of rules for nations and the growth of corruption. The evidence supports the second claim: nations with the lightest regulations of business exhibit lower levels of corruption, though both the levels of regulation and corruption may be outcomes of GDP growth rather than changes in regulation influencing changes in corruption. The evidence supports the third claim: nations with lighter versus heavier rules have larger formal economies, but economic growth may be the cause of lighter rules rather than the reverse or both the weight of rules and the size of economies may co-vary due to configurations of other conditions. The study presents evidence that growing corruption versus little change in corruptions relates to increases in GDP for nations low in competitiveness. The key conclusion is that The Economist's claim "Bad rules breed corruption. Cutting them costs nothing" is inaccurate and misleading. Additional research is necessary that identifies bad rules and their impact; cutting government rules of business can be extremely costly sometimes, as the Financial Crisis Inquiry Commission Report of the 2008-2009 financial meltdown indicates.