Investigating the non-linear relationship between democracy and corruption and its role in the development of member countries of the Islamic Conference: Applying the Panel Smooth Threshold Regression Model

Authors

• majid babaei agh esmaili ¹
• Hassan Khodavaisi ²

¹ Ph.D International Economics, University

² Associate Prof. of Economics Urmia University

10.30495/jzpm.2024.31712.4217

Abstract

In economic literature, corruption is defined as abusing public power for personal gain. Corruption affects gross domestic product, income distribution, human development, and in general, affects the economic and social structure of countries negatively and affects their credibility and competitiveness in the international economy. The importance of the issue of Democracy on the one hand and the extent of corruption on the other, highlights the need to examine the relationship between these two variables. In this paper, the nonlinear effects of Democracy on the corruption control index in the Organization of the Islamic Conference (OIC) member countries have been investigated during 2003-2019 using the PSTR model. The results of the estimation suggest a strong nonlinear relationship between variables and suggest a two regime model with a threshold of 0.1352 and a slope of 0.91. According to research findings, Democracy has a negative and significant effect in the first regime and a positive and significant effect on the corruption control index in the second regime, therefore, the U-shaped hypothesis between Democracy and the corruption control index is confirmed in the studied countries. The index of economic development and economic freedom in both regimes have a positive and significant effect on the index of corruption control. The effect of government size and women's participation rate (gender) on the corruption control index after the threshold limit and in the second regime is negative and positive, respectively. The effect of political stability is positive and significant before the threshold limit. Finally, inflation in the second regime has a negative and significant effect on the corruption control index.

Keywords

• Democracy
• Corruption
• Panel Smooth Threshold Regression Model
• Organization of the Islamic Conference (OIC) member countries

---