The Interrelationship Between Corruption, Economic Growth, and Trade: Do They Grease or Sand Each Other’s Wheels?

Abstract

The Commonwealth of the Independent States (CIS) is an intergovernmental organization of eleven sovereign states which was created from the ex-USSR in December 1991. Countries in this group are low- and middle-income economies and what is worse, there are many constraints on their economic growth and international trade. One of these constraints and common features of these countries is the high level of corruption. In the literature, it is mostly indicated that weak governance has detrimental effects or in other words, may “sand the wheels” economies. However, another approach which is called as “grease the wheels hypothesis” claims that corruption may affect economic activities positively in countries that have weak governance. The aim of this study is to investigate the grease or sand the wheels hypothesis for corruption in the CIS. In order to consider the interrelationship between international trade, growth, and corruption, we estimate tri-variate models by employing the panel bootstrap Granger causality tests. Also, owing to advanced used method, our causality results provide the sign of the causality coefficients. Our findings show that “grease the wheels” hypothesis is supported for Moldova and Turkmenistan for the economic growth and for Armenia, Kyrgyz Republic, Moldova, and Ukraine for international trade.