Corruption and Transactional Crime: Building up Effective Accountable Inclusive and Transparent Institutions as Ground for Sustainable Finance

Abstract

Corruption, defined by the misuse of public power for private gains, is endemic, pervasive, and a significant contributor to low economic growth. There is a vast volume of research on the relationship between corruption and economic growth that empirically show the negative effects of corruption on growth, development, and investment. Corruption distorts investment and provision of public services and increases inequality to such an extent that international organizations like the World Bank, the IMF, and the UN have identified corruption as “the single greatest obstacle to economic and social development” and gave the fight against corruption high priority. To fight the multidimensional issue of corruption, its causes should be studies. Based on the literature, there are three conditions necessary for corruption to arise and persist: (1) discretionary power of public officials, (2) the possibility of economic rent extraction, and (3) weak institutions. Many scholars have emphasized on the role of institutions (broadly defined to include political, bureaucratic, juridical, and economic institutions) in combating corruption and find a causal order running from weak institutions to corruption to poor economic outcomes. In other words, corruption is seen as the symptom that something more fundamental (institutions) are not efficient. Thus, to tackle corruption, institutions should be strengthened. Strong institutions also affect and change the financial environment on a country that could, in turn, provide a fertile ground for sustainable finance by adhering to environmental, social, and governance (ESG) standards. Institutions in a county can affect the ESG disclosure quality.