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Impact of Crime and Corruption on GDP per capita An Empirical Analysis of Cross-Country Data

By:M. Muqeem ul Islam1, Dr. Shahzad Hussain2

Objective of this research is to inquire ways and means to enhance well-being of
a society. Economy is one of the important dimensions of a society. Economic
performance has direct relationship with the crime, law & order condition and
corruption. In order to determine this phenomenon, paper’s endeavor focuses on
searching impact of crime rate, law & order condition, and rule of law on
economic performance. This empirical studies utilizes PPP adjusted GDP per
capita as proxy for economic performance. Nine (9) other variables have been
utilized to represent crime, law & order conditions and corruption. This
empirical study applies regression analysis including and excluding outliers with
2% Mahalanobis distance. Study shows that out of nine (9) exogenous variables
eight (8) variables exhibit β coefficients significant at 99% and 95% percent
confidence intervals. While variable related to rate of murders per thousand
inhabitant found inconsistent with theory. Plausible cause of diversion from
theory is misreporting of offenses in less developed countries and higher
prevalence of carnage in the transitional economies. Indicators depicting feeling
safe on streets and rule of law show highest elasticity out of nine variables.
Elasticity of GDP per capita with respect to Corruption Perception Index (CPI) is
also ranked high and found significant. The study concludes that institutional
reforms in crime and law & order related institutions will directly enhance
favorable environment for economic activities like tourism, foreign direct
investment,industrial growth and consumer confidence. Low crime rate also
reduces cost of investment, cost of transaction and direct security-related cost