Corruption and Economic Efficiency: Panel Data Evidence

Abstract

This paper investigates empirically the effect of corruption on countries' economic efficiency. By using a sample of 79 countries for the time period 2000–2006 the paper applies DEA window analysis and econometric panel data techniques. The results reveal that there is a U-shaped relationship between countries' corruption perception levels and economic efficiency. Furthermore, it appears that corruption has a negative effect on countries' economic efficiency. For the first time the turning points of such a relationship are being produced indicating that on average terms and regardless of countries' economic structure, Corruption Perception Index (CPI) above five initiate a positive effect on a countries' economic efficiency.