Economics of corruption: The demand side case of Western Balkan countries

Abstract

The purpose of this article is to identify some macroeconomic and institutional factors that lead to the demand for corruption in the Western Balkans. Corruption is a very negative phenomenon that distorts markets and harms economic growth. Corruption has its side of supply and demand. Both the supply and demand for corruption are influenced by many factors. Among the different indexes, the Corruption Perception Index and Control of Corruption Index are used in this paper as measures of corruption. To analyze factors that affect the demand for corruption, two econometric models are constructed, where independent variables are real income per capita, inequality gap, unemployment rate, rule of law, and government efficiency. A panel model with data for the period 2012-2022 is used to identify the most important variables affecting corruption in the Western Balkans. The results show that the index used to measure corruption affects the statistical significance of the variables, with the inequality gap and rule of law being significant in both models. The identification of factors can help the governments of these countries design policies and adopt strategies that will reduce the involvement of people in corrupt practices. There are a limited number of papers that have analysed the causes of corruption in the Western Balkans, and this paper will add value to the existing literature on this very important topic.