Economic corruption, a critical barrier to sustainable development, undermines public trust and institutions, threatening national identity in developing countries, particularly Iran. Conventional economics, with its focus on market efficiency, fails to address the institutional roots of corruption, whereas new institutional economics, emphasizing laws, norms, and organizations, provides a robust framework for analyzing corruption and national identity. This study investigates the impact of economic corruption on national identity and proposes policy strategies, employing the new institutional economics framework and panel data for 10 selected countries (Iran, India, Turkey, Brazil, Indonesia, Nigeria, Mexico, Pakistan, Egypt, Argentina) over 2010–2022. A fixed effects model, incorporating GDP per capita and political stability as control variables, was estimated. Results indicate that corruption (coefficient -0.420, p < 0.01) significantly reduces national identity, while GDP per capita (coefficient 0.280, p < 0.05) and political stability (coefficient 0.350, p < 0.01) enhance it. In Iran, sanctions and institutional weaknesses exacerbate corruption’s impact. The study underscores the need for institutional reforms, such as enhancing financial transparency, judicial independence, and anti-corruption culture. These findings offer practical implications for policymaking in Iran and developing countries, with novelty in applying new institutional economics to empirically analyze national identity and highlight the limitations of conventional economics.