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HomeOpinionMore the news about corruption, more the economic decline, says IMF paper

More the news about corruption, more the economic decline, says IMF paper

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Scholars from IMF ran a cross-country search on more than 665 million international news articles about corruption.

It is a well-known cliché that corruption harms economic growth. But even corruption-related news can negatively affect economies through many channels, including through their impact on financial markets.

Corruption is often hidden, making the measurement of it and its effects inherently difficult. In our recent analysis, we explore how news media can help improve and inform our understanding of corruption and anti-corruption efforts.

Prior literature on the subject has made several attempts to improve on existing indicators used to measure corruption. But these fell prey to numerous critiques. For example, large-scale, survey-based perception indicators tend to be excessively persistent and many claim they do not reflect actual corruption.


Also read: Anti-corruption activists rarely pay attention to the role of middlemen in India


Methodology: Leveraging millions of newspaper articles

We constructed big data, cross-country news flow indices of corruption (NIC) and anti-corruption (anti-NIC)—the first of their kind. For this, we ran country-specific search algorithms on more than 665 million international news articles for 30 different countries.

Our algorithms for the NIC required that articles meet the following metrics:

  • Mention of the country name within 8 words of mentioning a corruption-related term
  • Mention of a government-related term of a country within 8 words of mentioning a corruption-related term
  • No mention of anti-corruption efforts in the same article as mention of corruption
  • Articles had to be at least 99 words long
  • Sources were limited to major newspapers like The Wall Street Journal, The New York Times, the Nikkei, The Financial Times, The Globe and Mail, the Guardian, The Times of India, and continuously updated newswires like Reuters and The Associated Press.

Relative to other corruption-related measures, the research relies on publicly available and “vetted” news articles rather than unsubstantiated, anonymous allegations; reflects higher frequency changes in measured corruption; leverages a larger pool of assessments instead of a select pool of experts; and uses a salient source of information for everyone from small business owners to hedge fund investors—daily newspapers.

Theoretical foundation: From belief formation to economic outcomes

We then used the measures to explore how corruption-related news might engender changes in macro-outcomes from a theoretical perspective, and whether there is empirical evidence to support this lens.

Theoretically, insights from the corporate finance and behavioural economics literature suggest that all relevant news—in our case, corruption-related news—shapes beliefs and behaviours in a persistent manner. This allows us to relate the NIC and anti-NIC indices to economic outcomes.


Also read: Parliament amends anti-corruption act: Will it weaken the law or restore fairness?


Empirical findings: Impact of news about corruption and anti-corruption efforts on economic growth

Our empirical results show evidence of corruption-related news’ negative impact on borrowing costs, exchange rates, market outcomes, capital flows, fiscal balances, and growth. The effects are persistent: NIC shocks lower real GDP per capita growth by roughly 3 percentage points, cumulatively, over a two-year period.

Of course, governments can counter the prevalence of corruption through an array of anti-corruption efforts. However, such efforts cannot be based on mere utterances against corruption; real corrective action must take place. On their own, anti-NIC shocks do not produce statistically significant impact on growth. However, when coupled with capacity development efforts, real GDP per capita growth significantly and cumulatively increases over a three-year period.

There is no silver bullet when it comes to addressing corruption, and anti-corruption plans must be paired with meaningful institutional reform. Many governments have moved in this direction, often using technology as a method to increase transparency and accountability. Our work suggests that such efforts on institutional strengthening, if sustained, have the potential to be pivotal in turning the tide of corruption.

This is an edited extract from the paper ‘The Measurement and Macro-Relevance of Corruption: A Big Data Approach’ originally published by the IMF. Read the full paper here.

The views expressed in this article are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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1 COMMENT

  1. “However, when coupled with capacity development efforts, real GDP per capita growth significantly and cumulatively increases over a three-year period.”
    — Q: How did you define and measure “capacity development efforts”?

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