Corruption and Household Savings: Fostering Growth in Transition Countries
Cronin, Ian Timothy
Bednarzik, Robert W
This paper examines the relationship between corruption and household savings. The study tests the hypothesis that corruption is positively correlated with household savings in transition countries (i.e. former Soviet bloc states). International economic development organizations, and governments alike, operate under the assumption that a key to bolstering economic growth, particularly in transition countries, is to mitigate institutional corruption. However, given the high positive correlation between household savings and investment and economic growth, a positive correlation between corruption and household savings could indicate that current assumptions on maximizing short-term growth in these environments need to be reconsidered. This study utilizes the European Bank for Reconstruction and Development’s Life in Transition Survey II to determine the relationship between perceived levels of corruption and household savings. Using multivariable regression analysis, this assessment determines that perceived levels of corruption are negatively correlated with household savings. While this finding supports the international development communities’ current strategies for encouraging economic growth, the study also finds some evidence indicating households more directly impacted by corruption may actually save more. While this latter finding should not impact global growth strategies, it may influence strategies for dealing with this niche demographic.
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