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Institute for Economies in Transition, Bank of Finland BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland

No 4/2011:
Financial settlement modes and corruption: Evidence from developed nations

Aaron Mehrotra () and Rajeev K. Goel

Abstract: Using recent pooled data from several developed nations, the paper uniquely examines whether the composition of payment instruments has a bearing on the prevalence of corruption in a country. Our results suggest that the choice of instruments matters. Paper credit transfer transactions are consistently associated with corrupt activities, while credit card transactions tend to reduce them. Cheques generally increase corruption, the results with respect to nonpaper credit transfers are mixed, while direct debits fail to show significant effects on corruption. These findings hold for alternative corruption measures and when allowance is made for endogeneity of payment instruments.

Keywords: corruption; cheques; credit card; cash; direct debit; payment instruments; (follow links to similar papers)

JEL-Codes: F30; G30; H30; K40; (follow links to similar papers)

22 pages, April 28, 2011

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