Does Corruption Hinderance Economic Growth Despite Surge of Remittance and Capital Inflows Since Economic Liberalization in an Emerging Economy, India

The study has empirically examined how corruption can play a disruptive role in the progress of both domestic and national economy in India and what could be the degree of response of foreign capital inflow towards economic growth in both short run and long run since the economic liberalization. Therefore, our study has examined the effects of foreign capital inflows (i.e., remittance and foreign direct investment) on economic growth by controlling corruption, government final consumption expenditure, and trade balance over the period from 1995–1996 to 2016–2017. We have employed advance econometric models such as autoregressive distributed lag (ARDL) and Bayer-Hank (B-H). Our result shows that external capital inflow, corruption, trade balance, and government consumption expenditure are all associated with economic growth for long-run development. But the inclusion of an open economy (i.e., external capital inflows and trade balance) has not shown a significant effect on regional (domestic income) development since the initiation of economic reforms of the late 1990s in India, while the closed economy parameters such as government expenditure is remaining a potential contributor for growth in both domestic and national development. Rising corruption is always a threat to the Indian economy, and control of corruption is now a major challenge for an emerging economy to sustain its growth and development. This study could be useful for policymaking on the issues of governance and investment climate not only in the domestic economy of India but also in other emerging economies at large.