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Does easy availability of cash effect corruption? Evidence from panel of countries

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  • Singh, Sunny
  • Bhattacharya, Kaushik

Abstract

Using annual panel data of 54 countries for the period 2005-13, we examine whether cash in circulation, both aggregate and large denominated banknotes, affects the level of corruption in a country. Standard panel data models like pooled OLS, random effect and system GMM suggest that the ratios of (i) aggregate currency in circulation to M1 and, (ii) large denominated banknotes to M1 are both statistically significant determinants of corruption. Tests for reverse causality within a panel Granger framework reveal unidirectional causality of the first variable with corruption, but a bi-directional one with the second variable. These findings suggest that the central banks should try to limit the supply of banknotes of large denomination.

Suggested Citation

  • 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.
  • Handle: RePEc:pra:mprapa:65934
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    References listed on IDEAS

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    Cited by:

    1. Richa N. Agarwal, 2020. "The Role Of Effective Factors In Utaut Model On Behavioral Intention," Business Excellence and Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 10(3), pages 5-23, September.

    More about this item

    Keywords

    Control of corruption Index; Cash in circulation; Random effect model; System GMM;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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