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.
