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Archives of Business Research – Vol. 10, No. 4
Publication Date: April 25, 2022
DOI:10.14738/abr.104.12108. Li, L. (2022). The Granger Causality Between Corruption and Economic Growth in ASEAN Countries. Archives of Business Research,
10(04). 26-34.
Services for Science and Education – United Kingdom
The Granger Causality Between Corruption and Economic Growth
in ASEAN Countries
Li Li
School of Business
University of the Thai Chamber of Commerce, Thailand
ABSTRACT
This paper studies the Granger causality between corruption and economic growth
in ASEAN countries over the period of 1995-2019. Ten ASEAN countries are Brunei
Darussalam, Cambodia, Indonesia, Lao People's Democratic Republic, Malaysia,
Myanmar, Philippines, Thailand, Vietnam, and Singapore. The corruption is
measured by the Corruption Perception Index published annually by Transparency
International. The economic growth is measured by a country’s annual gross
domestic product growth rate. There is a significant bidirectional Granger causality
found between lower level of corruption and higher economic growth in Indonesia.
It is shown that higher economic growth Granger causes lower level of corruption
in Brunei Darussalam, and lower level of corruption Granger causes higher
economic growth in Cambodia. No Granger causality between corruption and
economic growth is found in the remaining seven ASEAN countries.
Keywords: Granger causality, Economic growth, Corruption, ASEAN
INTRODUCTION
Since the Association of Southeast Asian Nations (ASEAN) was formed by five countries in 1967,
more countries joined the organization in later 1980s and 1990s. Currently it has 10 members
namely Brunei Darussalam (BRN), Cambodia (KHM), Indonesia (IDN), Lao People's Democratic
Republic (LAO), Malaysia (MYS), Myanmar (MMR), Philippines (PHL), Singapore (SGP),
Thailand (THA), and Vietnam (VNM). ASEAN Economic Community (AEC) was established in
2015 to deepen the economic integration and eventually achieve the goal of a single integrated
market. Before Covid-19 pandemic, ASEAN had an average growth rate of more than 5 percent
per year for 5 years, and was the 5th largest economy in the world in 2019 [1]. ASEAN has now
become more “business facilitative, financially inclusive, digitally connected, and attractive to
investors” [1].
Corruption has been considered as having negative effect on economic growth. The
International Association of Anti-Corruption Authorities (IAACA) has been established in 2006
to fight against corruption. Anti-corruption agencies have been established in ASEAN as well,
however, the corruption hasn’t been tackled effectively so far [2].
The relationship between corruption and economic growth has been studied for several ASEAN
countries in previous papers, such as [3] and [4], with different sample periods and
methodologies. This paper studies the Granger causality relationship between corruption and
economic growth in all ten ASEAN countries.
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Li, L. (2022). The Granger Causality Between Corruption and Economic Growth in ASEAN Countries. Archives of Business Research, 10(04). 26-34.
URL: http://dx.doi.org/10.14738/abr.104.12108
The remaining of the paper is structured as follows, part 2 reviews the literature on economic
growth and corruption, part 3 explains the data and methodology, part 4 details the empirical
results of the study, and part 5 concludes the study.
LITERATURE REVIEW
One commonly used proxy for corruption is the Corruption Perception index (CPI) published
by Transparency International annually since 1995. The range of CPI is from 0 to 100 where 0
represents highly corrupted and 100 represents very clean with nearly no corruption.
Therefore, higher CPI score indicates lower level of corruption. CPI has been used in many
research papers on corruption such as [3, 5–12]. Annual gross domestic production growth rate
(GDPG) is the popular measurement for a country’s economic growth [7, 10, 13–14, 16].
Many papers studied the relationship between corruption and economic growth with different
data sets and methodologies. [3, 9, 12, 15–18] employed Granger causality test to study the
causal relationship between corruption and economic growth. The results are mixed among
those papers. For instance, the results in [12] show a bidirectional causality between higher
corruption and lower economic growth; whereas [16] found no causal relationship between
control of corruption and economic growth.
Only limited number of papers studied the relationship between corruption and economic
growth in some ASEAN countries. Study [3] included 6 ASEAN members in the sample of Asia- Pacific countries: Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam. No
significant causal relationship was found using the sample period of 1997-2013. Paper [4]
included Indonesia and Thailand in the sample of developing countries with the study period
of 1999-2014. The result showed that corruption caused some significant decreasing effect on
economic growth.
DATA AND METHODOLOGY
This paper intends to study the Granger causality between corruption and economic growth in
all ASEAN countries, including Brunei Darussalam (BRN), Cambodia (KHM), Indonesia (IDN),
Lao People's Democratic Republic (LAO), Malaysia (MYS), Myanmar (MMR), Philippines (PHL),
Thailand (THA), Vietnam (VNM) and Singapore (SGP). Following previous research papers, the
corruption is measured by the Corruption Perceptions Index (CPI) developed by Transparency
International, and the economic growth is measured by annual gross domestic product growth
rate (GDPG). As the CPI has been published since 1995 and Covid-19 pandemic has started since
2020, the sample period is chosen as 1995-2019 to exclude possible effects caused by the
pandemic.
The annual CPI scores are collected from the web page of Transparency International. And the
annual data of GDPG are collected from the World Development Indicators, web page of the
World Bank. Since some data of some countries are not available in some years, there are 206
country-year observations in total.
Thus, there are 10 variables for economic growth measured by annual GDPG of each country:
GDPGBRN, GDPGIDN, GDPGKHM, GDPGLAO, GDPGMMR, GDPGMYS, GDPGPHL, GDPGSGP,
GDPGTHA, and GDPGVNM; and 10 variables for corruption measured by the natural logarithm
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of the CPI score of each country: LNCPIBRN, LNCPIIDN, LNCPIKHM, LNCPILAO, LNCPIMMR,
LNCPIMYS, LNCPIPHL, LNCPISGP, LNCPITHA, and LNCPIVNM.
Granger causality test is used to study the causality between CPI and GDPG in each ASEAN
country. If variable CPI Granger causes GDPG, then values of GDPG are better predicted from
the past values of CPI than from its own values. Variables could show unidirectional causality
or bidirectional causality [9].
Augmented Dickey-Fuller test is employed to test whether variables are stationary. The null
hypothesis is that the variable has a unit root, which indicates nonstationary. If the null
hypothesis can’t be rejected, then the variable is adjusted to be stationary first before the
Granger causality test.
EMPIRICAL RESULTS
Descriptive Statistics
Table 1 shows the descriptive statistics of annual GDPG of 10 ASEAN countries during 1995-
2019. Some years are deleted for some countries because the CPI data is not available. Only 5
countries have the complete 25 observations for the whole period: IDN, MYS, PHL, SGP, and
THA. VNM has 23 observations, MMR has 17 observations, KHM and LAO have 15 observations,
and BRN has 11 observations.
It can be seen that MMR has the highest economic growth during the study period with average
annual GDPG of 9.09% and standard deviation of 3.30%. KHM and LAO have average annual
GDPG of about 7.40% where LAO has a lower standard deviation. VNM, SGP, PHL, MYS, IDN,
THA have average annual GDPG of 6.45%, 5.16%, 5.10%, 5.09%, 4.54% and 3.50%,
respectively. BRN has the lowest average annual GDPG of 0.29%.
Table 1. Descriptive statistics of annual GDPG of ASEAN countries
Mean
(%)
Standard
Deviation
(%)
Minimum
(%)
Maximum
(%) Obs. Years
BRN 0.29 2.40 -2.51 3.87 11 2009-2019
IDN 4.54 3.92 -13.13 8.22 25 1995-2019
KHM 7.42 2.81 0.09 13.25 15 2005-2019
LAO 7.40 0.99 4.65 8.62 15 2005-2019
MYS 5.09 3.54 -7.36 10.00 25 1995-2019
MMR 9.09 3.30 2.89 13.84 17 2003-2019
PHL 5.10 1.91 -0.58 7.33 25 1995-2019
SGP 5.16 3.79 -2.20 14.53 25 1995-2019
THA 3.50 3.49 -7.63 8.12 25 1995-2019
VNM 6.45 0.83 4.77 8.15 23 1997-2019
The level of corruption in each country during the study period is shown in Table 2. The range
of CPI is 0-100, the higher the CPI score, the lower the level of corruption. SGP has the highest
average CPI score of 89.69 indicating the lowest level of corruption among ASEAN countries.
MMR and KHM have the lowest average score of about 20.00 indicating the highest level of
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Li, L. (2022). The Granger Causality Between Corruption and Economic Growth in ASEAN Countries. Archives of Business Research, 10(04). 26-34.
URL: http://dx.doi.org/10.14738/abr.104.12108
corruption in the ASEAN region. BRN, MYS, THA, PHL, VNM, IDN, and LAO have the CPI scores
of 58.00, 49.64, 34.23, 29.68, 28.43, 26.84, and 25.00, respectively.
Table 2. Descriptive statistics of CPI of ASEAN countries
CPI Mean
Standard
Deviation Minimum Maximum Obs.
BRN 58.00 3.38 52 63 11
IDN 26.84 7.30 17 40 25
KHM 20.67 1.11 18 23 15
LAO 25.00 4.36 19 33 15
MYS 49.64 2.74 43 53 25
MMR 19.71 5.96 13 30 17
PHL 29.68 4.85 23 38 25
SGP 89.69 3.71 84 94 25
THA 34.23 2.65 28 38 25
VNM 28.43 3.63 24 37 23
The trends of CPI and GDPG of all ASEAN countries are shown in Figure 1. However, the trends
are not very clear for some countries. The CPI scores of IDN and VNM have the clear upward
trend which indicates lower level of corruption expected. The corruption trends in other
countries seem to be levelled off or getting worse. It is shown that economic growth rates are
either levelling off or getting lower in the future for all countries.
Unit Root Test and Granger Causality Test
Augmented Dickey-Fuller test is employed to test the unit root of each variable. It can be seen
in Table 3 that 6 variables in Panel A – GDPGIDN, GDPGMYS, GDPGPHL, GDPGSGP, GDPGTHA,
and LNCPITHA – are stationary at the level; 11 variables in Panel B – GDPGKHM, GDPGMMR,
GDPGVNM, LNCPIBRN, LNCPIIDN, LNCPIKHM, LNCPIMMR, LNCPIMYS, LNCPIPHL, LNCPISGP,
and LNCPIVNM – are stationary at the first difference; and 3 variables in Panel C – GDPGBRN,
GDPGLAO, and LNCPILAO – are stationary at the second difference.
The Granger causality test results are displayed in Table 4. There is a bidirectional causality
between LNCPIIDN and GDPGIDN, LNCPIIDN Granger causes GDPGIDN at the 5 percent
significance level and GDPGIDN Granger causes LNCPIIDN at the 1 percent significance level.
Lower level of corruption (higher CPI score) and higher economic growth are having
bidirectional Granger causality in IDN. This result is consistent with [12].
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Figure 1. Trends of CPI and GDPG of ten ASEAN countries
-20
0
20
40
60
80
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
CPIBRN GDPGBRN
-20
0
20
40
60
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
CPIIDN GDPGIDN
0
10
20
30
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
CPIKHM GDPGKHM
0
10
20
30
40
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
CPILAO GDPGLAO
0
10
20
30
40
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
CPIMMR GDPGMMR
-20
0
20
40
60
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
CPIMYS GDPGMYS
-10
0
10
20
30
40
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
CPIPHL GDPGPHL
-50
0
50
100
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
CPISGP GDPGSGP
-20
0
20
40
60
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
CPITHA GDPGTHA
0
10
20
30
40
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
CPIVNM GDPGVNM
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Li, L. (2022). The Granger Causality Between Corruption and Economic Growth in ASEAN Countries. Archives of Business Research, 10(04). 26-34.
URL: http://dx.doi.org/10.14738/abr.104.12108
Table 3. Augmented Dickey-Fuller test statistic
Panel A Constant Constant and trend Level
t- Statistic Prob. t-Statistic Prob. Order of integration
GDPGIDN -3.743 0.010** -4.290 0.013** I(0)
GDPGMYS -5.798 0.000*** -6.358 0.000*** I(0)
GDPGPHL -3.632 0.013** -4.248 0.014** I(0)
GDPGSGP -4.763 0.001*** -4.188 0.016** I(0)
GDPGTHA -4.140 0.004*** -4.095 0.019** I(0)
LNCPITHA -3.245 0.030** -4.505 0.008*** I(0)
Panel B Constant Constant and trend First difference
t- Statistic Prob. t-Statistic Prob.
Order of
integration
GDPGKHM -3.671 0.020** -3.679 0.063* I(1)
GDPGMMR -4.409 0.005*** -4.165 0.028** I(1)
GDPGVNM -6.599 0.000*** -6.313 0.000*** I(1)
LNCPIBRN -4.376 0.013** -3.975 0.067* I(1)
LNCPIIDN -5.274 0.000*** -6.021 0.000*** I(1)
LNCPIKHM -4.041 0.010** -3.813 0.051* I(1)
LNCPIMMR -3.452 0.026** -3.582 0.067* I(1)
LNCPIMYS -4.699 0.001*** -4.704 0.005*** I(1)
LNCPIPHL -4.464 0.002*** -4.349 0.012** I(1)
LNCPISGP -4.733 0.001*** -4.914 0.004*** I(1)
LNCPIVNM -6.352 0.000*** -4.551 0.010** I(1)
Panel C Constant Constant and trend Second difference
t-Statistic Prob. t-Statistic Prob. Order of integration
GDPGBRN -4.437 0.012** -4.726 0.031** I(2)
GDPGLAO -2.957 0.073* -3.627 0.082* I(2)
LNCPILAO -4.445 0.007*** -5.510 0.006*** I(2)
Note: ***, **, and * indicate significance at the level of 1%, 5%, and 10%, respectively.
There are two unidirectional causality found: GDPGBRN Granger causes LNCPIBRN at the 10
percent significance level, and LNCPIKHM Granger causes GDPGKHM at the 5 percent level.
That is, higher economic growth will Granger cause lower level of corruption in BRN. However,
lower level of corruption will Granger cause higher economic growth in KHM. This result is
consistent with the common negative effect of corruption on economic growth [4-7]. However,
since the sample sizes for BRN and KHM are small, the results should be interpreted with
caution.
There is no Granger causality between corruption and economic growth in the remaining 7
ASEAN countries. This result is consistent with [3, 16]. However, the result for THA is not
consistent with [4] and the possible reason is that sample periods are different in two studies.
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Table 4. Granger causality test results
Null Hypothesis: Obs
F- Statistic Prob.
D(LNCPIBRN) does not Granger Cause
D(GDPGBRN,2) 7 5.749 0.148
D(GDPGBRN,2) does not Granger Cause
D(LNCPIBRN) 13.493 0.069*
D(LNCPIIDN) does not Granger Cause GDPGIDN 22 4.658 0.024**
GDPGIDN does not Granger Cause D(LNCPIIDN) 9.811 0.002***
D(LNCPIKHM) does not Granger Cause
D(GDPGKHM) 12 9.226 0.011**
D(GDPGKHM) does not Granger Cause
D(LNCPIKHM) 1.660 0.257
D(LNCPILAO,2) does not Granger Cause
D(GDPGLAO,2) 11 2.202 0.192
D(GDPGLAO,2) does not Granger Cause
D(LNCPILAO,2) 2.089 0.205
D(LNCPIMMR) does not Granger Cause
D(GDPGMMR) 14 2.628 0.126
D(GDPGMMR) does not Granger Cause
D(LNCPIMMR) 1.424 0.290
D(LNCPIMYS) does not Granger Cause GDPGMYS 22 0.681 0.519
GDPGMYS does not Granger Cause D(LNCPIMYS) 1.381 0.278
D(LNCPIPHL) does not Granger Cause GDPGPHL 22 0.083 0.921
GDPGPHL does not Granger Cause D(LNCPIPHL) 2.135 0.149
D(LNCPISGP) does not Granger Cause GDPGSGP 22 1.309 0.296
GDPGSGP does not Granger Cause D(LNCPISGP) 1.473 0.257
LNCPITHA does not Granger Cause GDPGTHA 23 0.345 0.713
GDPGTHA does not Granger Cause LNCPITHA 0.274 0.764
D(LNCPIVNM) does not Granger Cause D(GDPGVNM) 20 0.911 0.423
D(GDPGVNM) does not Granger Cause D(LNCPIVNM) 1.109 0.356
Note: ***, **, and * indicate significance at the level of 1%, 5%, and 10%, respectively.
CONCLUSION
This paper studies the Granger causality between corruption and economic growth in 10
ASEAN countries over the period of 1995-2019. The economic growth is measured by annual
percentage growth rate of a country’s GDP and the corruption is measured by CPI published
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Li, L. (2022). The Granger Causality Between Corruption and Economic Growth in ASEAN Countries. Archives of Business Research, 10(04). 26-34.
URL: http://dx.doi.org/10.14738/abr.104.12108
annually by Transparency International. Due to missing data, only 5 countries have complete
25 observations for the whole sample period. MMR, KHM, LAO, and BRN have less than 20
observations, therefore the results of these 4 countries should be interpreted with caution.
A significant bidirectional Granger causality between lower level of corruption (higher CPI
score) and higher economic growth is found in IDN. Further, the results show that higher
economic growth will Granger cause lower level of corruption in BRN, and lower level of
corruption will Granger cause higher economic growth in KHM. Hence, the authorities and anti- corruption agencies in IDN, BRN, and KHM could refine policies to lower the level of corruption
and improve the economic growth.
This study shows no Granger causality between corruption and economic growth in the
remaining 7 ASEAN countries.
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