Investigating the Impact of Governance and Economic Corruption on Economic Well Being in Selected Developing Countries (Using the Smooth Threshold Model (PSTR))

Articles in Press

Document Type : Research Paper

Authors

1 Doctral studnt of Econometrics at Azad University Central Tehran Branch

2 Assistant Professor, Department of Economics, Faculty of Economics and Accounting, Islamic Azad University, Central Tehran Branch

3 Assistant Professor, Department of Economics, Faculty of Economics and Accounting, Islamic Azad University, Central Tehran Branch.

Abstract

Economic welfare is one of the key indicators for evaluating the economic and social performance of countries and is affected by institutional, human, technological, and macroeconomic factors. This study examines the effects of good governance and economic corruption on economic welfare in 18 selected developing countries over the period 2000–2022. For this purpose, a Panel Smooth Transition Regression model is applied. Economic welfare is proxied by the Human Development Index, good governance is used as a proxy for formal institutional quality, and economic corruption is considered as a proxy for informal institutional quality. Education, life expectancy, population growth, mobile cellular subscriptions, unemployment, and inflation are also included as control variables.

The results of panel unit root tests indicate that all variables are stationary in first differences. Moreover, the linearity test and goodness-of-fit criteria confirm the existence of a nonlinear and threshold relationship between institutional variables and economic welfare. The findings show that economic corruption is a more appropriate transition variable than good governance, and the model with two threshold locations is selected as the optimal specification. The results also indicate that the effects of explanatory variables on economic welfare differ across regimes. In the upper regime, education has a positive and significant effect on economic welfare, while inflation has a negative and significant effect. Therefore, reducing corruption, strengthening human capital, and controlling inflation can play an important role in improving economic welfare in developing countries.

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Main Subjects

Applied Theories of Economics

Articles in Press, Accepted Manuscript
Available Online from 06 June 2026

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