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Why does Public Investment Fail to Raise Economic Growth? The Role of Corruption

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  • M. Emranul Haque
  • Richard Kneller

Abstract

type="main"> In an endogenous growth model with information asymmetry between the government and the bureaucracy, the bureaucrats can falsely report of high-quality high-cost procurement, while providing low-quality low-cost product. This reduces the quality of public services, but inflates the public spending, which in effect reduces growth. We test our results by using three-stage least squares method in a panel set up for a system of four equations on growth, public investment, corruption and private investment. Our primary results are twofold. First, corruption increases public investment. Second, corruption reduces the returns to public investment and makes it ineffective in raising economic growth.

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  • M. Emranul Haque & Richard Kneller, 2015. "Why does Public Investment Fail to Raise Economic Growth? The Role of Corruption," Manchester School, University of Manchester, vol. 83(6), pages 623-651, December.
    • Handle: RePEc:bla:manchs:v:83:y:2015:i:6:p:623-651
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    3. Deku, Solomon Y. & Lim, King Yoong, 2024. "Oil price effects on optimal extraction–exploration and offshore entities: An applied-theoretical and empirical investigation in oil-rich economies," Energy Economics, Elsevier, vol. 129(C).
    4. Andrzej Cieślik & Łukasz Goczek, 2018. "Corruption, Privatisation and Economic Growth in Post-communist Countries," Europe-Asia Studies, Taylor & Francis Journals, vol. 70(8), pages 1303-1325, September.
    5. Lim, King Yoong, 2019. "Modelling the dynamics of corruption and unemployment with heterogeneous labour," Economic Modelling, Elsevier, vol. 79(C), pages 98-117.
    6. Sulemana, Iddisah & Kpienbaareh, Daniel, 2018. "An empirical examination of the relationship between income inequality and corruption in Africa," Economic Analysis and Policy, Elsevier, vol. 60(C), pages 27-42.
    7. Marek Tomaszewski, 2018. "Corruption - A Dark Side of Entrepreneurship. Corruption and Innovations," Prague Economic Papers, Prague University of Economics and Business, vol. 2018(3), pages 251-269.
    8. Zeeshan, Muhammad & han, Jiabin & Rehman, Alam & Ullah, Irfan & Hussain, Arif & Alam Afridi, Fakhr E., 2022. "Exploring symmetric and asymmetric nexus between corruption, political instability, natural resources and economic growth in the context of Pakistan," Resources Policy, Elsevier, vol. 78(C).
    9. Cieślik, Andrzej & Goczek, Łukasz, 2018. "Control of corruption, international investment, and economic growth – Evidence from panel data," World Development, Elsevier, vol. 103(C), pages 323-335.
    10. Vincenzo Alfano & Salvatore Capasso & Lodovico Santoro, 2023. "Corruption and the political system: some evidence from Italian regions," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 9(2), pages 665-695, July.
    11. repec:prg:jnlpep:v:preprint:id:647:p:1-19 is not listed on IDEAS
    12. Thi Anh Nhu Nguyen & Thi Thuy Huong Luong, 2020. "Corruption, Shadow Economy and Economic Growth - Evidence from Emerging and Developing Asian Economies," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 16(4), pages 85-94.
    13. RAMDE, Fousseni, 2015. "Institution, investissements et croissance dans l’UEMOA: une approche panel VAR [Institution, investments and growth in WAEMU: a panel VAR approach]," MPRA Paper 82417, University Library of Munich, Germany, revised 01 Jun 2017.
    14. Bakari, Sayef, 2024. "Causality between Domestic Investment and Economic Growth: New Evidence from Argentina," MPRA Paper 121799, University Library of Munich, Germany.

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