Bidirectional relationship between corruption and economic performance in Tanzania

Abstract

Corruption has resulted in numerous social, economic, and developmental issues in both developed and developing nations. The study applied Vector Autoregression approach to analyze and model bidirectional relationship between corruption perceptions index and three macroeconomic variables, namely; unemployment, inflation, and Gross Domestic Product growth rate which measure economic performance in Tanzania. The analysis covered the period from 1998 to 2021. The results show that the corruption perception index in Tanzania has been increasing steadily and significantly since 1998 and has a deterministic trend. In contrast, uncertainty and irregularity seem to best describe the distribution and pattern of unemployment, inflation and Gross Domestic Product growth. The statistical insights from impulse response analysis and forecast error variance decomposition show economic performance is closely related to corruption. Therefore, unfavorable economic performance serve as warning signs of corruption and vice versa. The study concludes that the main cause of corruption is the individual's struggle to escape prevailing economic situations, including inflation and unemployment. The result offers new anti-corruption strategies that consist of integrating political and legal reforms and promoting a stable and healthy economy.