Corruption, Shadow Economy and Economic Growth: Evidence from Emerging and Developing Asian Economies

This paper investigates the interactions of corruption and the shadow economy with economic growth in 17 selected Asian countries with emerging and developing economies. These countries are categorized according to International Monetary Fund sources and chosen based on available data. This paper analyzes the annual data over the period 2000 - 2015 from the World Bank, Transparency International and from International Monetary Fund to estimate whether corruption and shadow economy affect economic growth. Generalized Methods of Moments (GMM) method is used in this research. The results show that corruption index has a statistically significant and positive impact on economic growth while the shadow economy has a significant negative impact. These findings suggest that corruption does not sand but "greases on the wheel" of economic growth. Further, a reduction in the size of shadow economy could be more beneficial for emerging markets and developing economies in Asia to develop economy. Additionally, the results also indicate that in these countries, foreign direct investment, public expenditure, tax revenue and inflation have a positive impact on the growth while remittances have no relationship. Hence the findings from this research propose that economic growth would be significantly affected by policies on controlling corruption. These findings also provide political implications for the regulation of corruption and the shadow economy.