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Financial payment instruments and corruption

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  • Rajeev K. Goel
  • Aaron N. Mehrotra

Abstract

Using recent pooled data from a number of developed nations, this research uniquely examines whether the composition of payment instruments has a bearing on the prevalence of corruption in a country. Our results suggest that the choice of instruments matters. Paper credit transfer transactions consistently add to corrupt activities, while credit card transactions check such endeavours. Cheques mostly increase corruption, the results with respect to nonpaper credit transfers are mixed, while direct debits fail to show significant effects on corruption. These findings hold using alternate corruption measures and when allowance is made for endogeneity of payment instruments.

Suggested Citation

  • Rajeev K. Goel & Aaron N. Mehrotra, 2012. "Financial payment instruments and corruption," Applied Financial Economics, Taylor & Francis Journals, vol. 22(11), pages 877-886, June.
    • Handle: RePEc:taf:apfiec:v:22:y:2012:i:11:p:877-886
    DOI: 10.1080/09603107.2011.628295
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    References listed on IDEAS

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    1. G. Gulsun Arikan, 2004. "Fiscal Decentralization: A Remedy for Corruption?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(2), pages 175-195, March.
    2. Gundlach, Erich & Paldam, Martin, 2009. "The transition of corruption: From poverty to honesty," Economics Letters, Elsevier, vol. 103(3), pages 146-148, June.
    3. Rajeev K. Goel & Michael A. Nelson, 2005. "Economic Freedom Versus Political Freedom: Cross-Country Influences On Corruption ," Australian Economic Papers, Wiley Blackwell, vol. 44(2), pages 121-133, June.
    4. Montinola, Gabriella R. & Jackman, Robert W., 2002. "Sources of Corruption: A Cross-Country Study," British Journal of Political Science, Cambridge University Press, vol. 32(01), pages 147-170, January.
    5. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters,in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
    6. Rajeev K. Goel & Aaron N. Mehrotra, 2012. "Financial payment instruments and corruption," Applied Financial Economics, Taylor & Francis Journals, vol. 22(11), pages 877-886, June.
    7. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    8. Axel Dreher & Friedrich Schneider, 2010. "Corruption and the shadow economy: an empirical analysis," Public Choice, Springer, vol. 144(1), pages 215-238, July.
    9. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    10. Goel, Rajeev K. & Korhonen, Iikka, 2011. "Exports and cross-national corruption: A disaggregated examination," Economic Systems, Elsevier, vol. 35(1), pages 109-124, March.
    11. Knack, Stephen & Keefer, Philip, 1995. "Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Indicators," MPRA Paper 23118, University Library of Munich, Germany.
    12. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    13. Rajeev Goel & Iftekhar Hasan, 2011. "Economy-wide corruption and bad loans in banking: international evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 21(7), pages 455-461.
    14. Axel Dreher & Lars-H. Siemers, 2009. "The nexus between corruption and capital account restrictions," Public Choice, Springer, vol. 140(1), pages 245-265, July.
    15. repec:hrv:faseco:30728041 is not listed on IDEAS
    16. Toke S. Aidt, 2003. "Economic analysis of corruption: a survey," Economic Journal, Royal Economic Society, vol. 113(491), pages 632-652, November.
    17. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
    18. Danila Serra, 2006. "Empirical determinants of corruption: A sensitivity analysis," Public Choice, Springer, vol. 126(1), pages 225-256, January.
    19. Johann Graf Lambsdorff, 2006. "Causes and Consequences of Corruption: What Do We Know from a Cross-Section of Countries?," Chapters,in: International Handbook on the Economics of Corruption, chapter 1 Edward Elgar Publishing.
    20. Kari Takala & Matti Viren, 2010. "Is Cash Used Only in the Shadow Economy?," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 525-540.
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    Citations

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    Cited by:

    1. Rajeev K. Goel & Aaron N. Mehrotra, 2012. "Financial payment instruments and corruption," Applied Financial Economics, Taylor & Francis Journals, vol. 22(11), pages 877-886, June.
    2. Quintano, Claudio & Mazzocchi, Paolo, 2013. "The shadow economy beyond European public governance," Economic Systems, Elsevier, vol. 37(4), pages 650-670.
    3. Singh, Sunny & Bhattacharya, Kaushik, 2015. "Does easy availability of cash effect corruption? Evidence from panel of countries," MPRA Paper 65934, University Library of Munich, Germany.
    4. repec:kap:ejlwec:v:45:y:2018:i:1:d:10.1007_s10657-014-9434-3 is not listed on IDEAS
    5. repec:onb:oenbfi:y:2017:i:q3/17:b:3 is not listed on IDEAS
    6. Rajeev K Goel & Jelena Budak & Edo Rajh, 2013. "Bureaucratic Monopoly and the Nature and Timing of Bribes: Evidence from Croatian Data," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 55(1), pages 43-58, March.
    7. repec:eee:ecosys:v:41:y:2017:i:2:p:236-247 is not listed on IDEAS

    More about this item

    JEL classification:

    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
    • G3 - Financial Economics - - Corporate Finance and Governance
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • F3 - International Economics - - International Finance

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