Corruption, rule of law and government effectiveness: a co-integration approach to Sri Lanka

Abstract

What is the impact of corruption on rule of law and government effectiveness? In most cases, researchers assume a positive relationship, which means more control of corruption is more likely lead to government effectiveness and strong rule of law principles. In other words, strong legal system and effective governments are more likely to control corruption. The argument is when there is effective corruption control measures, which tends to increase government effectiveness. However, recent theoretical developments and case evidence support mixed relationship between corruption and government effectiveness, and rule of law and government effectiveness. By using World Bank’s Worldwide Governance indicators’ data for Sri Lanka covering the period from 1996 to 2015, we find a significant and positive relationship between government effectiveness and control of corruption in the long run as well as in the short run. Even though rule of law does not have a significant impact on government effectiveness in the long run, it affects government effectiveness negatively in the short run. Further, granger causality test concludes that more government effectiveness can efficiently control the corruption, at the same time, if the government is capable enough to control the corruption then the government can be more effective. Similarly, if the government maintains strong legal system and adhere to key principles of rule of law which are more likely to make the government more effective.