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

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Author Info

  • Arch G. Woodside

    (Carroll School of Management, Boston College, U.S.A.)

  • Man-Ling Chang

    (Department of Leisure and Recreation Management, Asia University, Taiwan)

  • Cheng-Feng Cheng

    (Department of International Business, Asia University, Taiwan)

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    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.

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    Bibliographic Info

    Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

    Volume (Year): 11 (2012)
    Issue (Month): 2 (December)
    Pages: 127-142

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    Handle: RePEc:ijb:journl:v:11:y:2012:i:2:p:127-142

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    Related research

    Keywords: GDP; government regulation; reform;

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    1. Matthew Cole & Robert Elliott & Jing Zhang, 2008. "Corruption, Governance and FDI Location in China : A Province-Level Analysis," Discussion Papers 08-06, Department of Economics, University of Birmingham.
    2. Barassi, Marco R. & Zhou, Ying, 2012. "The effect of corruption on FDI: A parametric and non-parametric analysis," European Journal of Political Economy, Elsevier, vol. 28(3), pages 302-312.
    3. International Finance Corporation & World Bank, 2012. "Doing Business 2012 : Doing Business in a More Transparent World," World Bank Publications, The World Bank, number 5907.
    4. Soyer, Emre & Hogarth, Robin M., 2012. "The illusion of predictability: How regression statistics mislead experts," International Journal of Forecasting, Elsevier, vol. 28(3), pages 695-711.
    5. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    6. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
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