Determinants of Corruption Perceptions : Transitional vs. Developed Economies

In this paper we explore relationships between corruption perceptions and such characteristics as the size of shadow economy, GDP per capita, well-being, the Happy Planet Index (HPI), and quality of institutions. Special attention is paid to the comparison of transitional economies with countries that joined the European Union in 2004 and 2007, and developed countries. It is shown that irrespective of whether the economy is developed or transitional, negative dependence of corruption perceptions on shadow economy switches to positive if the size of the shadow economy increases over 15% of the official GDP. After the shadow economy passes 45%, the Transparency International Corruption Perceptions Index ceases to respond to growth of the shadow economy. Our estimates confirm that transition in countries is accompanied by growth of GDP per capita and a decrease in the level of corruption perceptions. For these reasons, transitional countries and countries where transition is over belongs to different clusters according to these indicators. This is not true for well-being and the HPI. It is not surprising that a regression analysis shows that "control of corruption" and "regulatory quality" are significant for reducing corruption perceptions both in transitional and other economies. It is interesting that "government effectiveness" and "voice and accountability" are significant only for transitional economies and insignificant in others. "Rule of law" and "political stability" are insignificant both in transitional and in developed countries