Do digital payment transactions reduce corruption? Evidence from developing countries

Abstract

Extant studies have broadly attributed anti-corruption effects to digitization, although there is a paucity of studies on the role of digital payments in reducing corruption. With the increasing pervasiveness of digital payments and the widespread nature of corruption, particularly in developing countries, it is timely to explore the link between digital payments and corruption. Using a global panel dataset of digital payments and Transparency International's Corruption Perception Index (CPI), the study explores the relationship between digital payment transactions and corruption in 111 developing countries from 2010 to 2018. Our results, based on a fixed-effects analysis, show that digital transactions reduce corruption. Results remain robust to the use of instrumental variable analysis to alleviate endogeneity concerns. Our finding has implications for curtailing corruption in developing countries.