The team plans to contribute the new method to the global literature on corruption by creating the first cross-country news flow indices of corruption (NIC) and anti-corruption (anti-NIC) through algorithms that search the news articles. The team’s approach is outlined in “The Measurement and Macro-Relevance of Corruption: A Big Data Approach” (S. Hlatshwayo, et al., eds., IMF working paper No. 18/195).

Measuring corruption and its effects is difficult due to weaknesses in existing indicators, including “reliance on a limited pool of experts and an inability to distinguish between corruption and institutional capacity gaps”, stated the working paper’s summary.

“[…] Corrupt actors go to great lengths to keep their corruption hidden. And that makes measurement of corruption and its effects inherently difficult,” said team spokesperson Sandile Hlatshwayo in a forum on Tuesday at the 2018 Annual Meetings of International Monetary Fund-World Bank Group in Nusa Dua, Bali.

Hlatshwayo said previous literature on corruption had tried to improve upon such approaches. However, they had been criticized for being not representative enough.

To ensure that the new method was reliable, the team limited its data to articles of a minimum 99 words or a few paragraphs published 1995-2017 in major newspapers in 30 different countries.

Drawing on corporate finance and behavioral economics theories, the team has tested the extent to which news on corruption and anti-corruption efforts affected people’s assessments of corruption and, in turn, of economic outcomes.

The team argues in its analysis that news related to corruption, or “NIC shocks”, persistently lowered GDP, while anti-corruption measures appeared “to have a sustained positive impact only when paired with meaningful institutional strengthening”.

The team writes in the working paper that, based on its findings, “NIC shocks appear to negatively impact both financial and real variables [...]”, although with some differences due to local conditions. Financial variables include stock market returns and yield spreads, while real variables include economic growth.

NIC were therefore strongly related to measures of global competitiveness, ease of doing business and more structural issues, like quality of state institutions, said Hlatshwayo.

“Higher NIC are associated with lower competitiveness, lower judicial independence, lower ease of doing business and many other measures,” she said.

Conversely, however, the team said the evidence suggested that anti-NIC efforts would not help boost economic growth in the long run if relevant institutions were not strengthened.

“Launching big, squashy anticorruption campaigns on their own are not enough,” said Hlatshwayo. “Doing the work of strengthening institutions holistically by improving governance and transparency are also all-important.”

In the case of Indonesia, Hlatshwayo said the country’s Corruption Eradication Commission (KPK) had been considered an example of international best practices in how an institution had gained support and a good level of trust at the local level.

Finance Minister Sri Mulyani Indrawati had said earlier that Indonesia was committed to implementing an “open government” that enabled the public to oversee the government’s performance and monitor how their taxes were spent. Corruption would thus be eradicated gradually over the long term and the people would prosper, she said.

According to Transparency International, the majority of countries around the world are moving too slowly in their efforts to combat corruption.

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