Corruption,Privatisation and Economic Growth in Post-communist Countries

Abstract

This article empirically investigates the effects of corruption and privatisation on economic growth in the post-communist countries of Central and Eastern Europe and the former USSR. We use a corruption and privatisation augmented open-economy leader–follower endogenous growth model to derive our research hypotheses. In this setting, corruption, privatisation and external openness jointly determine the per capita income in the follower economy. This model predicts that economies with higher shares of private ownership, lower corruption, and higher external openness enjoy higher rates of growth. Our empirical verification of these predictions is based on a panel of 29 post-communist countries during the period 1996–2014. Our estimation results confirm the negative effects of corruption, while the positive effects of privatisation are limited to small-scale privatisation.     

Inequality,democracy and taxation: Lessons from the post-communist transition

Using data for the period 1989 – 2002, we examine the determinants of income inequality in post-communist economies. We find a strong positive association between equality and tax collection but note that this relationship is significantly stronger under authoritarian regimes than under democracies. We also discover that countries introducing sustainable democratic institutions early are characterised by lower inequality. We also confirm that education fosters equality and find that larger countries are prone to higher levels of inequality.     

Is Corruption Really Bad for Inequality? Evidence from Latin America

This article presents new evidence on the relationship between corruption and income inequality. Using a panel data methodology, we find that lower corruption is associated with higher income inequality in Latin America. This result is in contrast to other empirical studies but it makes sense in Latin America for a number of reasons. The finding of an inverse relationship between inequality and corruption suggests that institutional reform policies by themselves may be misguided.     

Economic Transformation Outside the Law: Corruption,Trust in Public Institutions and the Informal Economy in Transition Countries of Central and Eastern Europe

This article considers the role of the informal economy in Central and Eastern European post-communist countries. The informal economy is defined as the ‘black’ economy, which is monetised but outside the law (often illegal) on the one hand and the ‘household’ and ‘social’ economies which are non-monetised and non-legal in the sense that they are outside of legislation. The article shows that in some countries the black economy is very important for supporting household incomes (Serbia and Croatia) and in other countries the household or social economies are predominant (especially Romania and Ukraine). In a third group of countries the formal economy predominates over other economies (especially the Czech Republic and Hungary). The article goes on to look at what kinds of people participate in these different economies and concludes that whilst the household and social economies are a social safety net for the poor, the elderly and those in rural areas, the black economy is more likely to be an option for those who are already better off to improve their incomes. The article considers the implications of this for attitudes to the legitimacy of the public realm and finds that greater participation in the informal economy is associated with both loss of trust in public institutions and increased perception of corruption. Therefore it is hypothesised that economic activities that take place ‘outside the law’ could lead to a decline in confidence in the state, although there are important variations between countries.     

Inequality and Economic Growth: The Empirical Relationship Reconsidered in the Light of Comparable Data

Almost all the recent empirical work on the relationship between income inequality and economic growth has used inequality data that are not consistently measured. This article argues that this is inappropriate and shows that the significant negative correlation often found between income inequality and growth across countries may not be robust when income inequality is measured in a consistent manner. However, evidence is found of a significant negative correlation between consistently measured inequality of expenditure data and economic growth for a sample of developing countries.     

Crime, organised crime and corruption in post-communist Europe and the CIS

This article examines the incomplete and sometimes contradictory evidence on the crime, organised crime and corruption situations in post-communist states, and then seeks to explain the apparent increase in all three in early post-communism. Among the factors considered are the impact of weak states and economies, neo-liberalism, globalisation, Schengen and Fortress Europe, the Communist legacy (the ‘ghost from the past’), and collusion. The article then examines the dynamics of criminality and malfeasance in the region, and provides evidence to suggest that the crime and corruption situation has stabilised or even improved in most post-communist countries in recent times. The factors considered for explaining this apparent improvement are the role of external agents (notably the EU), the move from transition to consolidation, and the role of political will.     

Bureaucratic Corruption and Income: Evidence from the Land Sector in Bangladesh

We examine, for the first time, the effects of corruption on income using household survey data from a developing country. Estimating the effects of corruption on income is challenging because of the simultaneous relationship between the two variables. We use a two-step instrumental variable approach to identify the effects of corruption on income. We find that after adjusting for simultaneity bias the act of bribery reduces income and that higher bribes have a negative effect on income. Taken together, our results provide a possible explanation why a vicious cycle between corruption and income inequality does not exist in the land sector in Bangladesh.     

Old welfare state theories and new welfare regimes in Eastern Europe: Challenges and implications

This paper reviews some theoretical and empirical literature written on welfare state development in post-communist Eastern Europe in the light of the theories and approaches that have been developed to study affluent capitalist democracies. The aim of this discussion is to critically reassess the old welfare state theories, definitions and approaches and their implications regarding the study of post-communist Eastern Europe.The paper ends with the conclusion that the exclusion of ‘communist’ countries for more than twenty years from welfare state theorising has created an empirical and theoretical gap. This creates fresh challenges for welfare state research and calls for a new paradigm. It is evident that the not so well explored Eastern European region with regards to social policy research suggests that it is necessary not only to test already existing welfare state theories, definitions, typologies and approaches on these countries, but also to advance them.     

Social Inequality and Assessments of Democracy and the Market: Evidence from Central and Eastern Europe

Considerable comparative scholarly attention has been paid to various aspects of mass support for democracy and the market. However, despite strong theoretical suggestions of a linkage, little is known about the impact of social inequality on this support. We address this issue using evidence from mass surveys undertaken in 12 post-communist states in 2007, supplemented by country-level data about economic and political performance. Specifically, we investigate whether social inequality generates negative perceptions that democracy and the market will lead to social conflict and if it increases support for anti-democratic forms of governance. Notably, we find little link between citizens’ expectations of social conflict and national-level indices of income inequality. However, we do find a link between perceptions of the extent of social inequality and expectations of market-generated—but not democracy-generated—conflict. Underscoring these positive and negative findings, perceptions of social inequality are also clearly consequential for support for ‘strong-hand’ economic government but not for anti-democratic leadership.     

Media corruption and issues of journalistic and institutional integrity in post-communist countries: The case of Bulgaria

From a normative standpoint the media are usually seen as one of the pillars of a national integrity system, entrusted with the tasks of exposing and preventing acts of corruption and educating the public of the harm caused by corruption. Nevertheless, corruption continues to be one of the most significant challenges that Europe faces, undermining citizens' trust in democratic institutions and weakening the accountability of political leadership. Evidence suggests that in fragile EU democracies such as Bulgaria, despite more than eight years of full membership and numerous preventive measures, corruption is rife and the press is hardly capable of exposing abuses of power or authority. On the contrary - drawing on in-depth interviews with 35 Bulgarian journalists - this paper argues that since communism collapsed in the late 1980s the media in post-communist societies such as Bulgaria has gradually become an instrument to promote and defend private vested interests, and is plagued by corruption. Senior journalists and editors cast serious doubt over the ability of the post-communist free press and journalism to act as a watchdog for society.     

The transition from limited access orders to open access orders in the post-communist Europe

This paper attempts to explain the process of institutional transition of post-communist countries applying conceptual framework proposed by D.C. North, J. J. Wallis, and B. R. Weingast. The first part of the article is devoted to outline the theory of North, Weingast, and Wallis. The second part the theory is used to analyze transformation processes in post-communist countries. An important conclusion of this paper is that cultural, religious and historical factors have crucial impact on formation of new coalitions of elites in the transitions countries. In the countries where Western values were present the transfer of the market and democratic formal institutions was easier. Also, the process of transformation was strongly influenced by external factors, especially the prospect of integration with the European Union, which encouraged elites to take action that benefited the opening of both political and economic markets. These observations suggest that, in general, the success of transformation in transition countries did not depend on the intentional actions of ruling elites.     

Inequality and Support for Political Engagement in New Democracies

Existing studies of income inequality and political participation—including related literature, for example, on preferences for redistribution—leave us with the question of whether citizens see political democracy as offering ways to challenge market inequalities. Using original surveys in 13 Central and Eastern European countries, I find that those who see high and undesirable levels of income inequality have stronger demands for popular democratic participation than those who do not. In addition, neither the aggregate levels of support for political engagement nor individuals’ perceptions of inequality are coordinated with either national-level indicators of income inequality or democratic performance.     

Inequality,Economic Development,and Democratization

Although multiple theories suggest that economic development and inequality somehow affect democratization, these claims have received only limited empirical support. I contend that much of the confusion stems from the implicit assumption held by the literature that development and inequality affect democratization independently of one another. In this paper, I argue that the effect of income distribution on democratization is in fact contingent on the income level: in middle-income countries inequality fosters democratization; in rich countries, however, it harms democratization. Using a data set covering almost all autocracies between 1960 and 2007, I find evidence consistent with my hypothesis.     

A Cross-Country Comparison of Corruption and Public Expenditures: A Panel Data Approach

Corruption is an especially serious problem for all countries, and has damaging effects on sustainable economic growth. Although there is a significant relationship between corruption and public expenditures, the degree and way of this relationship is changed according to countries. The main objective of this article is to analyze the relationship between corruption and the level and composition of public expenditures, using data from 21 countries which are classified as countries in above and below average corruption perception indices. In empirical analysis, panel data were used in modeling of the effects of corruption on public expenditures. The empirical results show the findings support the hypothesis that the composition of public expenditures has an important element on corruption for countries.     

Inequality and the Impact of Growth on Poverty: Comparative Evidence for Sub-Saharan Africa

This study explores the extent to which inequality affects the impact of income growth on the rates of poverty changes in sub-Saharan Africa (SSA) compared to non-SSA, based on an unbalanced panel of 86 countries over 1977–2004. For all three measures of poverty – headcount, gap, and squared gap – the impact of GDP growth on poverty reduction is a decreasing function of initial inequality. The impacts are similar in direction for SSA and non-SSA, so that within both regions there are considerable disparities in the responsiveness of poverty to income growth, depending on inequality. Nevertheless, the income–growth elasticity is substantially less for SSA, implying relatively small poverty-reduction response to growth.     

Welfare reforms and socio-economic trends in the 10 new EU member states of Central and Eastern Europe

The paper reviews recent socio-economic changes in the 10 new EU member states of Central and Eastern Europe and the earlier and latest debates on the emergence of the post-communist welfare state regime. It asks two questions: are the new EU member states more similar to each other in their social problems encountered than to the rest of the EU world? Do they exhibit enough common socio-economic and institutional features to group them into the distinct/unified post-communist welfare regime that deviates from any well-known welfare state typology?The findings of this paper indicate that despite some slight variation within, the new EU countries exhibit lower indicators compared to the EU-15 as it comes to the minimum wage and social protection expenditure. The degree of material deprivation and the shadow economy is on average also higher if compared to the EU-15 or the EU-27. However, then it comes to at-risk-of-poverty rate after social transfers or Gini index, some Eastern European outliers especially the Check Republic, but also Slovenia, Slovakia and Hungary perform the same or even better than the old capitalist democracies. Latvia, Lithuania, Estonia, Romania, Bulgaria, Poland, however, show many similarities in their social indicators and performances and this group of countries never perform better than the EU-15 or the EU-27 averages. Nevertheless, the literature reviews on welfare state development in the CEE region reveal a number of important institutional features in support of identifying the distinct/unified post-communist welfare regime. Most resilient of it are: an insurance-based programs that played a major part in the social protection system; high take-up of social security; relatively low social security benefits; increasing signs of liberalization of social policy; and the experience of the Soviet/Communist type of welfare state, which implies still deeply embedded signs of solidarity and universalism.     

Lustration,Transitional Justice,and Social Trust in Post-Communist Countries. Repairing or Wresting the Ties that Bind?

Interpersonal trust in post-communist societies is particularly low, and is often cited as an impediment to democratic consolidation. One way in which countries in Central and Eastern Europe and the former Soviet Union have tried to build trust is through transitional justice measures, particularly lustration or vetting policies. There is a direct relationship postulated between lustration, transitional justice, and social trust building. This paper tests this assumption by examining the impact of both targeted lustration and broader transitional justice programmes on social trust. The study finds there is a divergent impact of lustration on trust, both building particularised trust in social institutions and undermining generalised interpersonal trust.     

The impact of the gender composition of households on inequality and poverty: a comparison across Russia and Eastern Europe

This study compares poverty and income distribution among gender subgroups in Russia and four East European countries—Bulgaria, Romania, Hungary and Poland—in 2000. Does the gender poverty gap exist in these countries and if yes, how big is it? How much does the level of gender inequality contribute to explaining the level of aggregate inequality and poverty within each country? To what extent may the differences emerging in cross-country comparisons of poverty and inequality be explained by differences in the gender composition of households, e.g., the prevalence of female-dominated households? These are the questions I seek to answer in this paper.Equivalent expenditure is adopted as a measure of economic welfare of households with different gender ratios. The gender gap is defined as the degree of distance between the economic welfare of households dominated by women and households dominated by men. Headcount poverty and average poverty shortfalls are calculated using relative poverty lines. Inequality is measured by Gini and Theil L coefficients.     

Institutions and Poverty

This study utilises eight alternative measures of institutions and the instrumental variable method to examine the impacts of institutions on poverty. The estimates show that an economy with a robust system to control corruption, an effective government, and a stable political system will create the conditions to promote economic growth, minimise income distribution conflicts, and reduce poverty. Corruption, ineffective governments, and political instability will not only hurt income levels through market inefficiencies, but also escalate poverty incidence via increased income inequality. The results also imply that the quality of the regulatory system, rule of law, voice and accountability, and expropriation risk are inversely related to poverty but their effect on poverty is via average income rather than income distribution.     

Post-communist regime types: Hierarchies across attributes and space

In this article we order the 28 post-communist countries in a theoretically informed typology of political regime forms. Our theoretical expectation is that a hierarchy exists in the extent to which the post-communist countries fulfill democratic criteria concerning electoral rights, civil liberties, and the rule of law. More particularly, we expect that the countries are doing better with respect to electoral rights than civil liberties and that they fare worst regarding the rule of law. The analyses confirm three – ever stricter – versions of this hypothesis, in the end establishing the presence of an almost perfect hierarchy across the attributes in the form of a Guttman scale. Furthermore, a systematic cross-spatial distribution is identified, which lends support to the notion that the present political differences must be traced back to structural constraints and are, therefore, likely to subsist.