Short Run and Long Run Effects of Corruption on Economic Growth: Evidence from Balkan Countries

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

The quantitative methodology is impressive in this paper, but other problems undermine its effectiveness -- and, there is not really a story or detailed interpretation of the results other than that they seem mostly to tell us what we already knew about the effects of corruption on economic growth and other trends. The one more interesting finding -- one that illustrates the value of the short- vs- long-term focus, which is the paper's main claim to contribute to the literature, needs considerably more intepretation. True that Hirschman said something about that a long time ago, but what does THIS analysis tell us, in detail, and what is its significance? Overall there is an unfortunate tendency to assume that the statistical methodology is enough by itself to carry the whole paper, and in its present form it does not.

I like the short-vs-long-term focus, as mentioned, but the definition of corruption here is awfully narrow: there is a great deal more to corruption than just payments to bureaucrats, particularly in terms of that longer frame of reference. Over time the immediate effects of those payments should distort the performance of an economy and government in qualitative terms -- viz. the familiar finding that extensively corrupt regimes tend to spend more on airports and power dams than on nurses and schools. Moreover, they ripple outward to other parties and other transactions (Rose-Ackerman has long made that argument), and among other things should significantly affect expectations regarding future dealings.

In that, the CPI data represent a lost opportunity here: the CPI, despite the fact that it seems to be interpreted in awfully literal ways at several points in this paper, does not measure corruption. It measures perceptions, and in fact the authors here hint at that by mentioning that the CPI itself might affect economic dealings. But the theoretical setup -- which ought to mediate many relevant effects via expectations -- says little about that aspect of corruption, and the statistical treatment (as far as I can tell) does not deal with it either. In fact the theoretical introduction to the paper seems to focus mostly on high-level/systemic trends and changes, using terms that need some explanation and justification (e.g. "real socialism"), and to say little about what expectations might tell us or lead us to hypothesize.

I also wonder about the time scales of causality for some of the variables -- is a month-by-month scale appropriate for all the causal connections involved, particularly in light of possible variations in levels of noise as regards some variables and connections among them -- and about whether some of those causal mechanisms should be thought of as straightforward A->B causality, or whether there might be recursive or feedback connections to be considered? It may well be that the analysis does address such possibilities but, if so, that is not made clear.

In the end: the impressive methodology needs a context that more fully justifies and explains what's going on in the paper, and the interpretation and importance of the findings should be made more clear. Quite frankly I am not qualified to make anything more than a cursory evaluation of those quantitative techniquess, but I do look for a detailed and tightly-argued causal story in any paper of this sort so that the data and results can be put to best use. That sort of story, at this point, is either lacking or buried in quantitative details --

Comments on the Quality of English Language

I assume the author(s) are writing in a second or third language -- something that, frankly, I would not be capable of doing -- but will still add that editing is in order. Various wordings and constructions (e.g. sections are called "paragraphs"), repetitions, and much-needed explanatory material (e.g. for "cointgration", "Pesaren hypothesis", etc) should be the focus of a thorough editing -- 

Author Response

Thank you for the important suggestions that we have taken into account.
You will find all the changes made in red in the paper:

1. we have clarified the adopted definition of corruption and revised the entire narrative to better bring out the relevance of the theoretical framework taken from Hirschman (1982).

2. we have expanded the literature review and introduced a new table in which all the major contributions on the effects corruption can have on economic growth and other economic variables appear in chronological order. The table includes a column specifying the methodology adopted and, in the empirical papers, the data used to measure corruption. There is then an additional column summarizing the main results obtained in the different papers.

3. We also explained why, for our purposes the ARDL methodology is the best possible.

4. We also justified more precisely why Transparency International's CPI is for the Balkan area the best available dataset for measuring corruption.

5. In particular, we took into account the points you made to us about the expectations that CPI can in fact describe. Indeed we wrote in the paper (rows 464-471):

"To summarize, it can be claimed that the CPI is the most comprehensive indicator of corruption. This is also why it is by far the most widely used corruption index in empirical work, as evidenced by the contents of the second column in Table 1. This choice is particularly suitable for the problem we want to address, drawing inspiration from Hirshman's approach. In fact, the CPI - unlike the other available indicators - is better able to consider not only the perceived supply of opportunities for bribery, but also expectations regarding how many individuals among those who have the opportunity are willing to corrupt and allow themselves to be corrupted."

About this point we added also new sentences in the conclusions:

"In conclusion, corruption impedes development, despite the appearance that it may facilitate economic growth by expediting bureaucratic processes in the short run. Our research also supports a Hirschmanian vision of economic development. It is precisely reference to the theoretical framework proposed by Hirschman (1982) that can help us interpret our results. As we mentioned, in his theory of society's oscillation between intense interest in public issues and almost total concentration on private goals, the German economist who ended his long career at the School of Social Sciences of the Institute for Advanced Study at Princeton, defines corruption as a psychological mechanism that accompanies disappointment in public involvement and indicates a shift toward private goals. According to Hirschman (1982), the practice of corruption has a strong effect on preferences between public and private. The Hirschmanian theory makes it very clear in what sense corruption can be considered a cultural factor. The determination of behaviors that corrode civic sense means that in countries where corruption is widespread, individuals' choices are conditioned by preference profiles that favor behaviors aimed at sacrificing the collective interest in favor of selfish interest. Only in the long run can the damaging effects of systemic corruption incentivize citizens to revalue public institutions. Although it may seem beneficial from an individualistic and short-term perspective, corruption becomes a determinant of further and deeper discontent, which in the long run damages civic life and the entire economic system.

Summing up: It can be argued that the results indicate any positive effects of corruption on economic growth may be short-lived, and negative effects may emerge in the long run. This can be understood by considering the idea that economic development is not solely about capital accumulation, but also about the organization and coordination of heterogeneous products and capabilities, which are negatively impacted by corruption.

The policy implications that can be drawn from our study are still very general: to achieve a better understanding of pathological behavior within society means, at least to some extent, to take control of it. However, it is not currently possible to point to direct remedies. This would involve a careful field study to fully understand the state of public institutions in the countries on which we conducted the estimates. It is undoubtedly of utmost importance to disincentivize those opportunistic behaviors that tend to spread in the perception of those citizens convinced that corruption is the best way to obtain economic benefits. The dissemination especially in school and university institutions of appropriate civic education can help reconstruct the heterogeneous capabilities that are fundamental in determining the long-term growth trajectories of the Balkan area. This may be more important than the uncritical deregulation of markets or the generic assumption of a Western democratic model that is still the focus of policy directions in much of the literature devoted to the Balkan area."

6. We have been trying to improve English and are in contact with a native speaker reviewer. Before the final publication of the paper we will intervene if necessary again on the English language.

Reviewer 2 Report

Comments and Suggestions for Authors

The paper titled "Short Run and Long Run Effects of Corruption on Economic Growth: Evidence from Balkan Countries" provides valuable insights into the relationship between corruption and economic growth in the Balkan region. The abstract presents a clear overview of the study's objectives, methodology, and findings. However, there are several revisions that would enhance the clarity, organization, and overall quality of the manuscript. Below are specific comments and recommendations for improvement:

Relevant References: The authors should add some relevant recent studies, such as Gründler and Potrafke (2019), Sharma and Mitra (2019), Afonso and de Sá Fortes Leitão Rodrigues (2022), De Paulo et al. (2022), Spyromitros and Panagiotidis (2022), Dokas et al. (2023), and Τrabelsi (2024).

https://doi.org/10.1080/23322039.2022.2129368

https://doi.org/10.1111/rode.12859

https://doi.org/10.1007/s10644-021-09338-4

https://doi.org/10.1016/j.eap.2022.12.032

https://doi.org/10.1016/j.ejpoleco.2019.08.001

https://doi.org/10.1002/jid.3433

https://doi.org/10.1007/s40847-023-00301-9

Justification of Methodology:

The authors should provide a more robust justification for the choice of the Autoregressive Distributed Lag (ARDL) methodology over alternative approaches such as Generalized Method of Moments (GMM), Fully Modified OLS (FMOLS), and Dynamic OLS (DOLS). Additionally, they should address why a panel methodology was not employed. The current justification provided in lines 346-358 is brief and could be expanded to better demonstrate the suitability and advantages of the ARDL approach, especially in the context of the study's objectives and data limitations. 

Robustness Tests:

The authors should consider other measures of corruption in order to strengthen the robustness of their results. For instance, see the Control of Corruption Index or the International Country Risk Guide Corruption Index.

Reorganization of Sections:

I recommend reorganizing Sections 1, 2, and 3 into "1. Introduction" and "2. Literature Review" sections. This restructuring will improve the flow of the paper and provide a clearer delineation between the introductory content and the review of relevant literature. Furthermore, including tables within the literature review section to summarize key findings from previous studies would enhance the reader's understanding and engagement with the literature.

Consistency in Table Formatting:

The authors should ensure that all tables in the manuscript adhere to the same format and style. Consistency in table formatting enhances readability. Therefore, I recommend selecting one format/style and applying it consistently throughout the paper.

Revision of References:

The references should be revised to align with the journal's guidelines regarding format and style. Ensure that all references follow the prescribed citation style and include appropriate links where necessary.

Author Response

Thank you for the important suggestions that we have taken into account.
You will find all the changes made in red in the paper:

1. we have clarified the adopted definition of corruption and revised the entire narrative to better bring out the relevance of the theoretical framework taken from Hirschman (1982).

2. we have expanded the literature review and introduced a new table in which all the major contributions on the effects corruption can have on economic growth and other economic variables appear in chronological order. The table includes a column specifying the methodology adopted and, in the empirical papers, the data used to measure corruption. There is then an additional column summarizing the main results obtained in the different papers.

3. We also explained why, for our purposes the ARDL methodology is the best possible. In pariticular, we wrote within paragraph 3:

"As we have shown in the literature review summarized in Table 1, scholars have used several alternative approaches to estimate the impact of corruption on economic growth. For our case study, i.e. the Balkan area, the use of a panel methodology is not appropriate because we want to highlight the heterogeneity among the different countries that are included in our sample by estimating the short-run and long-run effect of perceived corruption on economic growth for each of these countries. Moreover, as we shall see in the following sections the time series of GDP and CPI are cointegrated (see Table 2). In this situation a GMM estimator in prime differences for dynamic panels, such as that proposed by Arellano and Bond, is subject to large biases. "

We also wrote in section 4:

"A robust justification for the choice of the ARDL methodology is based on the results obtained by Panoupoulou and Pittis (2004). They compared the performance of the ARDL and Dynamic OLS cointegration estimators in the case of a serially correlated cointegration error. Their results suggest that ARDL fares consistently better than DOLS, both in terms of estimation precision and reliability of statistical inferences. Additional results suggest that ARDL re-emerges as the optimal estimator within a wider class of asymptotically efficient estimators including,  the semiparametric fully modified least squares (FMLS) estimator of Phillips and Hansen , the non-linear parametric estimator (PL) of Phillips and Loretan and the system-based maximum likelihood estimator (JOH) of Johansen."

4. We also justified more precisely why Transparency International's CPI is for the Balkan area the best available dataset for measuring corruption:

"Additional indices exist to quantify corruption, like TI’s Global Corruption Barometer or the World Bank Control of Corruption Indicator. Instead, the so-called corruption index from the International Country Risk Guide (ICRG) is not a good indicator for our purposes. As Lambsdorff (2003: 458) argues, this indicator does not measure corruption, but rather the political risk associated with corruption. The political risk measured by the ICRG increases not only with the level of corruption, but also with the intolerance of corruption. Various researchers have misinterpreted the ICRG data on corruption (as we summarize in Table 1).

The CPI was selected because it is thought to be the most reliable measure of corruption. Referring to the World Bank (2018) study, the CPI, despite some limitations (for example because the computation methodology has been changed in 2012), is the most valid measure of the magnitude of overall corruption in many country contexts. The CPI is calculated by aggregating thirteen different perception surveys on corruption's administrative and political aspects. The people whose perceptions are evaluated share a striking similarity: a group of country economists supported by a global network of in-country specialists, who also rely on the expert opinions of in-country freelancers, clients, and other contacts, business executives in each country, and finally ordinary people from various professions. As a result, those who form the perception are thought to be unaffected by the media or other circumstances. In comparison, the World Bank’s Control of Corruption (CCI) dimension of governance provides a broader measure of public sector corruption. The CCI is fairly like the CPI, however unlike the CPI, one of its representative sources is solely focused on corruption committed by bureaucrats, implying that the lean toward unelected officials may be slightly bigger than the CPI. Furthermore, the CCI employs fewer representative sources (five versus eight), suggesting that it is less likely to be composed of representative sources indicating the level of 'political' corruption compared to the CPI. The CPI was published alongside the Global Corruption Barometer (GCB). The idea behind the GCB is that it gives information on the general public's opinions of corruption, which are influenced by visual and written media.

To summarize, it can be claimed that the CPI is the most comprehensive indicator of corruption. This is also why it is by far the most widely used corruption index in empirical work, as evidenced by the contents of the second column in Table 1. This choice is particularly suitable for the problem we want to address, drawing inspiration from Hirshman's approach. In fact, the CPI - unlike the other available indicators - is better able to consider not only the perceived supply of opportunities for bribery, but also expectations regarding how many individuals among those who have the opportunity are willing to corrupt and allow themselves to be corrupted."

5. We revised the references to align with the journal's guidelines regarding format and style.

Reviewer 3 Report

Comments and Suggestions for Authors

The paper provides analyzes the short and long-term effects of corruption on economic growth in eight Balkan countries, utilizing an auto-regressive distributed lag (ARDL) methodology. The findings suggest that, while corruption might boost economic growth in the short term by expediting bureaucratic processes, it has significant negative impacts in the long term due to the associated social costs and burdens. The study confirms the theoretical perspective that in the long run, corruption is unsustainable and detrimental to economic development, aligning with Hirschman's views on economic progression.

Based on the detailed review of the document, here are some suggestions for the authors:

1. Clarify Methodological Choices: The paper uses an ARDL methodology to assess the effects of corruption on economic growth. While this is a robust choice, it would benefit from a more detailed explanation of why this method is preferred over others, especially in the context of your data characteristics and the specific economic conditions of the Balkan countries. Provide more details on model specifications, variable selection, and the reasons behind the choice of certain lag structures.

2. Expand on the Literature Review: The review of existing literature could be expanded to include more recent studies, especially those that might offer contrasting or updated views on the impact of corruption on economic growth. This would help situate your study within the current academic discourse and highlight its contribution more effectively.

3. Address Data Limitations: While the use of Transparency International's Corruption Perception Index (CPI) is common, it is also criticized for being subjective and potentially biased. Discuss the limitations of this data source and how they might affect your findings. If possible, consider incorporating alternative measures of corruption to validate your results.

4. Enhance Comparative Analysis: The paper discusses the impact of corruption in eight Balkan countries. A comparative analysis highlighting the specific factors in each country that may influence the relationship between corruption and economic growth could enrich the findings. This could include political, historical, or economic conditions unique to each country.

5. Improve Policy Recommendations: The conclusions could be strengthened by offering more concrete policy recommendations based on your findings. These should be tailored to the specific contexts of the Balkan countries studied. Discuss how policymakers can address the short-term benefits of corruption without incurring long-term costs.

6. Strengthen the Discussion on Generalizability: Address the extent to which your findings can be generalized beyond the Balkan region. Discuss whether the ARDL approach and conclusions drawn from this study can be applicable to other regions with similar economic and political backgrounds.

7. Proofread for English Quality: Ensure that the paper is free of grammatical and spelling errors to maintain academic credibility. Consider having a native English speaker or professional editing service review the paper.

8. Enhance the Practical Applications: Discuss how your findings can be applied in real-world scenarios. This could involve the development of specific anti-corruption strategies or economic policies tailored to the nuances discovered in your research.

Comments on the Quality of English Language

The English quality of the paper is generally good, with the text being clear and well-structured. The abstract and introduction sections provide a coherent overview of the research objectives and the significance of the study. Technical terms and concepts are used appropriately throughout the text, indicating a professional level of language proficiency.

However, there are minor grammatical errors and instances of awkward phrasing that could be improved to enhance readability and overall professional presentation. Addressing these issues would make the arguments more persuasive and the findings clearer to the reader. It would be beneficial for the authors to review the paper for these minor linguistic issues or consider having a native English speaker or professional editor review the manuscript to refine the language further.

Author Response

Thank you for the important suggestions that we have taken into account.
You will find all the changes made in red in the paper:

1. We explained why, for our purposes the ARDL methodology is the best possible. In pariticular, we wrote within paragraph 3:

"As we have shown in the literature review summarized in Table 1, scholars have used several alternative approaches to estimate the impact of corruption on economic growth. For our case study, i.e. the Balkan area, the use of a panel methodology is not appropriate because we want to highlight the heterogeneity among the different countries that are included in our sample by estimating the short-run and long-run effect of perceived corruption on economic growth for each of these countries. Moreover, as we shall see in the following sections the time series of GDP and CPI are cointegrated (see Table 2). In this situation a GMM estimator in prime differences for dynamic panels, such as that proposed by Arellano and Bond, is subject to large biases. "

We also wrote in section 4:

"A robust justification for the choice of the ARDL methodology is based on the results obtained by Panoupoulou and Pittis (2004). They compared the performance of the ARDL and Dynamic OLS cointegration estimators in the case of a serially correlated cointegration error. Their results suggest that ARDL fares consistently better than DOLS, both in terms of estimation precision and reliability of statistical inferences. Additional results suggest that ARDL re-emerges as the optimal estimator within a wider class of asymptotically efficient estimators including,  the semiparametric fully modified least squares (FMLS) estimator of Phillips and Hansen , the non-linear parametric estimator (PL) of Phillips and Loretan and the system-based maximum likelihood estimator (JOH) of Johansen."

2. we have expanded the literature review and introduced a new table in which all the major contributions on the effects corruption can have on economic growth and other economic variables appear in chronological order. The table includes a column specifying the methodology adopted and, in the empirical papers, the data used to measure corruption. There is then an additional column summarizing the main results obtained in the different papers.

3. We also justified more precisely why Transparency International's CPI is for the Balkan area the best available dataset for measuring corruption:

"Additional indices exist to quantify corruption, like TI’s Global Corruption Barometer or the World Bank Control of Corruption Indicator. Instead, the so-called corruption index from the International Country Risk Guide (ICRG) is not a good indicator for our purposes. As Lambsdorff (2003: 458) argues, this indicator does not measure corruption, but rather the political risk associated with corruption. The political risk measured by the ICRG increases not only with the level of corruption, but also with the intolerance of corruption. Various researchers have misinterpreted the ICRG data on corruption (as we summarize in Table 1).

The CPI was selected because it is thought to be the most reliable measure of corruption. Referring to the World Bank (2018) study, the CPI, despite some limitations (for example because the computation methodology has been changed in 2012), is the most valid measure of the magnitude of overall corruption in many country contexts. The CPI is calculated by aggregating thirteen different perception surveys on corruption's administrative and political aspects. The people whose perceptions are evaluated share a striking similarity: a group of country economists supported by a global network of in-country specialists, who also rely on the expert opinions of in-country freelancers, clients, and other contacts, business executives in each country, and finally ordinary people from various professions. As a result, those who form the perception are thought to be unaffected by the media or other circumstances. In comparison, the World Bank’s Control of Corruption (CCI) dimension of governance provides a broader measure of public sector corruption. The CCI is fairly like the CPI, however unlike the CPI, one of its representative sources is solely focused on corruption committed by bureaucrats, implying that the lean toward unelected officials may be slightly bigger than the CPI. Furthermore, the CCI employs fewer representative sources (five versus eight), suggesting that it is less likely to be composed of representative sources indicating the level of 'political' corruption compared to the CPI. The CPI was published alongside the Global Corruption Barometer (GCB). The idea behind the GCB is that it gives information on the general public's opinions of corruption, which are influenced by visual and written media.

To summarize, it can be claimed that the CPI is the most comprehensive indicator of corruption. This is also why it is by far the most widely used corruption index in empirical work, as evidenced by the contents of the second column in Table 1. This choice is particularly suitable for the problem we want to address, drawing inspiration from Hirshman's approach. In fact, the CPI - unlike the other available indicators - is better able to consider not only the perceived supply of opportunities for bribery, but also expectations regarding how many individuals among those who have the opportunity are willing to corrupt and allow themselves to be corrupted."

4. Given the purposes of the research and the limitations of length for the paper prescribed by the journal, we have limited the comparative analysis among the eight countries to the section on the characteristics of the Balkan area and to some considerations in the conclusions. On the other hand, the comments in the estimates already highlight the differences found in the analysis of the effects of corruption on the growth rates of the eight economies in the short and long run.

5. About the policy reccomandations, the generalizability of the analysis and the practical applications, we wrote in the conclusions:

"The policy implications that can be drawn from our study are still very general: to achieve a better understanding of pathological behavior within society means, at least to some extent, to take control of it. However, it is not currently possible to point to direct remedies. This would involve a careful field study to fully understand the state of public institutions in the countries on which we conducted the estimates. It is undoubtedly of utmost importance to disincentivize those opportunistic behaviors that tend to spread in the perception of those citizens convinced that corruption is the best way to obtain economic benefits. The dissemination especially in school and university institutions of appropriate civic education can help reconstruct the heterogeneous capabilities that are fundamental in determining the long-term growth trajectories of the Balkan area. This may be more important than the uncritical deregulation of markets or the generic assumption of a Western democratic model that is still the focus of policy directions in much of the literature devoted to the Balkan area."

6. We have been trying to improve English and are in contact with a native speaker reviewer. Before the final publication of the paper we will intervene if necessary again on the English language.

Reviewer 4 Report

Comments and Suggestions for Authors

The paper discusses the issue of corruption in the Balkan region and its potential impact on economic growth. It highlights the lack of consensus among scholars regarding the direction of this effect, with some arguing for a positive correlation between corruption and growth, while others support the opposite view. The authors propose using an ARDL methodology to analyze both short- and long-term effects simultaneously, which they argue is robust with small samples. The results of their study, covering eight countries in the region, show heterogeneity among the countries. They suggest that while corruption may initially facilitate economic growth by expediting bureaucratic processes, in the long run, the social costs associated with corruption become significant, posing challenges to sustaining political, economic, and social development.

-In general, I must emphasize that the content of the paper is not novel, neither in terms of its objectives nor the econometric methodology employed.

- Regarding the introduction, I wish to make two points. Firstly, while historically correct, the assertion that some researchers support the notion that corruption may enhance growth is akin to the past skepticism towards climate change. Presently, such views represent a minority among researchers and are often not taken seriously. It may be beneficial for the authors to acknowledge this perspective. Corruption may indeed yield short-term benefits for individual firms, but it typically results in a zero-sum game for society at large. What one firm gains through expedited administrative proceedings via bribes, others lose as their processes slow down.

Secondly, the authors assert two characteristics of Balkan countries without providing evidence to support these claims. It is essential to include indications and proofs to substantiate these assertions.

- Section 2 would benefit from additional references to the existing literature. I recommend that the authors concentrate on exploring the relationship between corruption and growth specifically within the context of these countries.

- In section 3, the discussion on the econometric literature regarding the correlation between corruption and growth appears brief. Considering the vast number of empirical studies on this topic, I suggest expanding this section to provide a more comprehensive review.

-In section 4, the authors have to state the precise internet location, where the used data can be found.

- I have some reservations regarding the use of monthly CPI data as an indicator. While CPI measures the perception of corruption rather than corruption itself, it can be influenced by current events and media coverage. For instance, a significant corruption scandal, even if relatively small in scale but highly publicized, could inflate the CPI ratings. This suggests that CPI may be influenced by media, including social media platforms like X, Facebook, and Telegram, in recent years. Therefore, I would suggest conducting calculations using an alternative corruption indicator and including the results to enhance the robustness of the findings.

-Are the authors sure that the CPIs of different years are comparable, because the methodology used to calculate the CPI has changed in time to my knowledge.

- In the discussion, the author asserts that 'corruption in these countries often becomes a cultural factor, which is difficult to prevent and combat,' without providing evidence to support this claim. I have reservations about the notion that corruption is inherently part of any culture. While it is plausible that corruption may be more entrenched in certain cultures compared to others, attributing corruption directly to culture may be overstating the case. For instance, why are individuals from the Balkans not disproportionately involved in corruption cases compared to citizens from Western and Nordic European countries like the Netherlands, Germany, and Norway? If corruption were indeed ingrained in Balkan culture, one might expect to observe higher levels of corruption among individuals from these regions. Therefore, while acknowledging that corruption may be more prevalent in certain cultural contexts, it is essential to avoid overly simplistic explanations that attribute corruption solely to culture.

-The explanations from the appendix should be taken in the main text on data and methodology, because the procedures the authors applied to the data is very relevant.

Comments on the Quality of English Language

Regarding the English: The paper needs to be prove-read. The paper contains many awkward phrases and grammar and syntax mistakes. Examples of awkward phrases from the abstract: "there is still no agreement on the sign of this effect", "Our thesis is that these differences should be explained by looking at the short- and long-term effects", "The results are not homogeneous", “The following theoretical intuition could be confirmed", or "although corruption could be seen as a factor that helps economic growth by speeding up the bureaucratic processing in the short run, conversely in the long run".

Author Response

Thank you for the important suggestions that we have taken into account.
You will find all the changes made in red in the paper:

1. We believe that our statements within the introduction are justifiable in light of the marked expansion of the literature review we have carried out. 

We have expanded the literature review and introduced a new table in which all the major contributions on the effects corruption can have on economic growth and other economic variables appear in chronological order. The table includes a column specifying the methodology adopted and, in the empirical papers, the data used to measure corruption. There is then an additional column summarizing the main results obtained in the different papers. We added in the text and in the Table 1 a a large body of empirical work devoted to the effects corruption has on economic growth. 

Contributions that seek to show to relevance of the "grease the wheels" hypothesis are undoubtedly fewer in number than contributions that show the relevance of the "sand the wheels" hypothesis about the effects of corruption. However, there are still empirical works in 2024 that indicate that under an optimal threshold, a moderate level of corruption, defined by the point of reversal of the curve of the marginal corruption effect on growth, could have advantages for economic growth.

2. About the characteristics of the Balkan countries we wrote within Section 2: "In 2018, the average value of the European Union countries is 66, more than 20 points above the global average. The situation of the Balkan countries is significantly worse: all the countries in the area occupy low average positions in the overall ranking. With an average CPI of only 41 points, Serbia, Bosnia and Herzegovina, Kosovo, North Macedonia, and Albania are between eighty-eighth and 100th in the ranking. Only Croatia (60) and Montenegro (68) have fewer worrying values of the CPI." We chose not to include additional references devoted to the analysis of corruption in the Balkan countries, since we found no new research in the literature relevant to economic studies beyond what we had already considered.

3. We explained why, for our purposes the ARDL methodology is the best possible. In pariticular, we wrote within paragraph 3:

"As we have shown in the literature review summarized in Table 1, scholars have used several alternative approaches to estimate the impact of corruption on economic growth. For our case study, i.e. the Balkan area, the use of a panel methodology is not appropriate because we want to highlight the heterogeneity among the different countries that are included in our sample by estimating the short-run and long-run effect of perceived corruption on economic growth for each of these countries. Moreover, as we shall see in the following sections the time series of GDP and CPI are cointegrated (see Table 2). In this situation a GMM estimator in prime differences for dynamic panels, such as that proposed by Arellano and Bond, is subject to large biases. "

We also wrote in section 4:

"A robust justification for the choice of the ARDL methodology is based on the results obtained by Panoupoulou and Pittis (2004). They compared the performance of the ARDL and Dynamic OLS cointegration estimators in the case of a serially correlated cointegration error. Their results suggest that ARDL fares consistently better than DOLS, both in terms of estimation precision and reliability of statistical inferences. Additional results suggest that ARDL re-emerges as the optimal estimator within a wider class of asymptotically efficient estimators including,  the semiparametric fully modified least squares (FMLS) estimator of Phillips and Hansen , the non-linear parametric estimator (PL) of Phillips and Loretan and the system-based maximum likelihood estimator (JOH) of Johansen."

4. We also justified more precisely why Transparency International's CPI is for the Balkan area the best available dataset for measuring corruption:

"Additional indices exist to quantify corruption, like TI’s Global Corruption Barometer or the World Bank Control of Corruption Indicator. Instead, the so-called corruption index from the International Country Risk Guide (ICRG) is not a good indicator for our purposes. As Lambsdorff (2003: 458) argues, this indicator does not measure corruption, but rather the political risk associated with corruption. The political risk measured by the ICRG increases not only with the level of corruption, but also with the intolerance of corruption. Various researchers have misinterpreted the ICRG data on corruption (as we summarize in Table 1).

The CPI was selected because it is thought to be the most reliable measure of corruption. Referring to the World Bank (2018) study, the CPI, despite some limitations (for example because the computation methodology has been changed in 2012), is the most valid measure of the magnitude of overall corruption in many country contexts. The CPI is calculated by aggregating thirteen different perception surveys on corruption's administrative and political aspects. The people whose perceptions are evaluated share a striking similarity: a group of country economists supported by a global network of in-country specialists, who also rely on the expert opinions of in-country freelancers, clients, and other contacts, business executives in each country, and finally ordinary people from various professions. As a result, those who form the perception are thought to be unaffected by the media or other circumstances. In comparison, the World Bank’s Control of Corruption (CCI) dimension of governance provides a broader measure of public sector corruption. The CCI is fairly like the CPI, however unlike the CPI, one of its representative sources is solely focused on corruption committed by bureaucrats, implying that the lean toward unelected officials may be slightly bigger than the CPI. Furthermore, the CCI employs fewer representative sources (five versus eight), suggesting that it is less likely to be composed of representative sources indicating the level of 'political' corruption compared to the CPI. The CPI was published alongside the Global Corruption Barometer (GCB). The idea behind the GCB is that it gives information on the general public's opinions of corruption, which are influenced by visual and written media.

To summarize, it can be claimed that the CPI is the most comprehensive indicator of corruption. This is also why it is by far the most widely used corruption index in empirical work, as evidenced by the contents of the second column in Table 1. This choice is particularly suitable for the problem we want to address, drawing inspiration from Hirshman's approach. In fact, the CPI - unlike the other available indicators - is better able to consider not only the perceived supply of opportunities for bribery, but also expectations regarding how many individuals among those who have the opportunity are willing to corrupt and allow themselves to be corrupted."

4. Given the purposes of the research and the limitations of length for the paper prescribed by the journal, we have limited the comparative analysis among the eight countries to the section on the characteristics of the Balkan area and to some considerations in the conclusions. On the other hand, the comments in the estimates already highlight the differences found in the analysis of the effects of corruption on the growth rates of the eight economies in the short and long run.

5. We have clarified what we mean when we relate corruption to culture. In particular, we revised the entire narrative of the paper by giving relevance to the framework proposed by Hirschman (1982).  We wrote in the conclusions

"We argue that corruption is a cultural phenomenon in the Western Balkans, as it is linked to several common factors, such as the strong presence of mafia-style criminality with numerous political influences and the tradition of familyism. The habit of offering presents to doctors who have not previously requested them. Practice of paying for a position in public administration. All of these have existed in the area under question for many decades. ... 

In conclusion, corruption impedes development, despite the appearance that it may facilitate economic growth by expediting bureaucratic processes in the short run. Our research also supports a Hirschmanian vision of economic development. It is precisely reference to the theoretical framework proposed by Hirschman (1982) that can help us interpret our results. As we mentioned, in his theory of society's oscillation between intense interest in public issues and almost total concentration on private goals, the German economist who ended his long career at the School of Social Sciences of the Institute for Advanced Study at Princeton, defines corruption as a psychological mechanism that accompanies disappointment in public involvement and indicates a shift toward private goals. According to Hirschman (1982), the practice of corruption has a strong effect on preferences between public and private. The Hirschmanian theory makes it very clear in what sense corruption can be considered a cultural factor. The determination of behaviors that corrode civic sense means that in countries where corruption is widespread, individuals' choices are conditioned by preference profiles that favor behaviors aimed at sacrificing the collective interest in favor of selfish interest. Only in the long run can the damaging effects of systemic corruption incentivize citizens to revalue public institutions. Although it may seem beneficial from an individualistic and short-term perspective, corruption becomes a determinant of further and deeper discontent, which in the long run damages civic life and the entire economic system."

6. We moved the appendix in the main text following your suggestion.

Round 2

Reviewer 1 Report

Comments and Suggestions for Authors

As I often say in reviewing this kind of manuscript (quoting something that Abraham Lincoln may or may not actually have said), and may even have written in my comments on the first version, “People who like this sort of thing will find this the sort of thing they like” —

What we have here is a highly competent and internally consistent statistical analysis that raises an interesting and important question — that of the short- and longer-term economic consequences of corruption -- based on eight countries that may or may not be typical of anything other than themselves. Those who see that as a sufficient evidence base, who think the CPI actually tells us much about corruption itself, and who see corruption as a single generic problem or process, will be persuaded by the analysis and its conclusions. I find this conclusions intriguing and worthy of future study, although particularly because of the limited geographic scope of the cases in question and the way the CPI flattens out the concept of corruption, I’d argue that detailed case studies and process tracing would have been far more effective ways to test the core hypothesis and dig up the subtleties that might lurk behind short-term results on a one-dimensional perceptions index. As it stands, the analysis devotes a great deal of statistical magic to a small evidence base of debatable validity…

That said, and in the spirit of Lincoln as quoted above, this sort of work is part of a prominent stream in the literature and, based on the techniques it offers, belongs in that larger debate and methodological domain. Looked at that way, it will be a more-than-worthy contribution to a literature that embodies major tendencies in the sub field, whatever I might think of it personally. Moreover, the revisions signal a bona fide effort to respond to reviewers’ comments. Therefore, I recommend publication with few if any revisions—

Author Response

Thank you for your comments, which we fully endorse. We are aware of the limitations of our empirical analysis and we also believe that the CPI can hide very relevant aspects of corruption. However, as you have grasped, our paper aims to confront the empirical literature on corruption by trying to propose a new interpretative key that will stimulate new research. Thanks to your last considerations, we have added the following caveat in our conclusions: "The conclusions we reach are worthy of future study, particularly because of the limited geographic scope of the cases in question and the way the ICC simplifies the concept of corruption. Future research based on detailed field case studies will be a more effective way to test the core hypothesis and to unearth the subtleties that may belurking behind the econometric results presented here."

We will upload the final version of the paper once the proof-reading is completed by next Monday.

Reviewer 3 Report

Comments and Suggestions for Authors

Thank you for submitting the revised version of your manuscript. I appreciate your efforts in addressing my previous comments. I have one final suggestion before recommending your paper for publication in the Economies journal: please relocate Table 1 to the appendix and refer to it appropriately within the main text. This adjustment will enhance the readability of your paper for our audience. I look forward to your revised submission.

Author Response

Thank you also for this last suggestion. We have reallocated Table 1 in the Appendix and refer to it appropriately within the main text.

We will upload the final version of the paper once the proof-reading is completed by next Monday.

Reviewer 4 Report

Comments and Suggestions for Authors

While I do not agree with all arguments made by the authors, they have convinced me that their stance coincide with that of other scientists in the field. Overall the authors have improved their paper significantly and the line of their arguments is consistent.

Nevertheless, I recommend that the authors shall proofread the paper regarding the English. I have detected a few typos and some expressions they used are uncommon (e.g. at the end of the short-run).

Comments on the Quality of English Language

In the text are a few typos and some uncommon expressions.

Author Response

Thank you also for this last suggestion. We asked a native English speaker to do a final proof-reading of the paper to reach the best possible standards before final publication. We will upload the final version of the paper once the proof-reading is completed by next Monday.