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Does Corruption Affect Economic Growth?

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  • Eatzaz Ahmad
  • Muhammad Aman Ullah
  • Muhammad Irfanullah Arfeen

Abstract

Using panel data from the International Country Risk Guide corruption index, institutional quality and political stability indices and several state variables for developed and developing countries, this paper explores the linear quadratic empirical relationship between corruption and economic growth. Empirical literature has shown a linear relationship between corruption and economic growth but hasn’t dif ferentiated between growthenhancing and growth-reducing levels of corruption. An analysis based on the generalized method of moments estimation shows that a decrease in corruption raises the economic growth rate in an inverted U-shaped way. This result is robust with respect to alternative specifications of the econometric relationship.

Suggested Citation

  • Eatzaz Ahmad & Muhammad Aman Ullah & Muhammad Irfanullah Arfeen, 2012. "Does Corruption Affect Economic Growth?," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 49(2), pages 277-305, November.
    • Handle: RePEc:ioe:cuadec:v:49:y:2012:i:2:p:277-305
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    References listed on IDEAS

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    2. Cordelia Onyinyechi Omodero, 2019. "The Implication of Corruption on Economic Progress of Nigeria," Review of European Studies, Canadian Center of Science and Education, vol. 11(2), pages 110-110, December.
    3. Fisayo Fagbemi & Geraldine E. Nzeribe & Tolulope T. Osinubi & Simplice A. Asongu, 2021. "Interconnections between Governance and Socioeconomic Conditions: Understanding Sub-Saharan African Challenges," Working Papers of the African Governance and Development Institute. 21/099, African Governance and Development Institute..
    4. Dina M. Yousri & Christian Richter, 2018. "Sociological challenges for Egypt’s development: 1981–2013," International Economics and Economic Policy, Springer, vol. 15(4), pages 727-742, October.
    5. Wen-wen Zheng & Li Liu & Zhen-wei Huang & Xu-yun Tan, 2017. "Life Satisfaction as a Buffer of the Relationship Between Corruption Perception and Political Participation," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 132(2), pages 907-923, June.
    6. Erum, Naila & Hussain, Shahzad, 2019. "Corruption, natural resources and economic growth: Evidence from OIC countries," Resources Policy, Elsevier, vol. 63(C), pages 1-1.
    7. Kuboniwa, Masaaki, 2014. "The Impact of Oil Prices, Total Factor Productivity and Institutional Weakness on Russia’s Declining Growth," RRC Working Paper Series 49, Russian Research Center, Institute of Economic Research, Hitotsubashi University.
    8. M Julian Tama, 2024. "Interplay of Investment Dynamics and Corruption on Economic Growth in Asia-Pacific Nations," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 141-161.
    9. Grace Nkansa Asante & Kofi Kamasa & Myles Patrick Bartlett, 2022. "Foreign direct investment and economic growth nexus in ECOWAS: The leveraging effect of anti-corruption," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 14(2), pages 176-188.
    10. Ghulam Shabbir & Mumtaz Anwar & Shahid Adil, 2016. "Corruption, Political Stability and Economic Growth," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 55(4), pages 689-702.
    11. Ziberi Besime & Alili Merita Zulfiu, 2021. "Economic Growth in the Western Balkans: A Panel Analysis," South East European Journal of Economics and Business, Sciendo, vol. 16(2), pages 68-81, December.
    12. Huang, Chiung-Ju, 2016. "Is corruption bad for economic growth? Evidence from Asia-Pacific countries," The North American Journal of Economics and Finance, Elsevier, vol. 35(C), pages 247-256.
    13. Muhammad Aman Ullah & Cathy Urquhart & Tiru Arthanari & Eatzaz Ahmed, 2022. "Dimensions of corruption in Pakistan: A systems thinking approach and qualitative analysis," Systems Research and Behavioral Science, Wiley Blackwell, vol. 39(2), pages 324-338, March.
    14. Siphiwo Bitterhout & Beatrice D. Simo-Kengne, 2020. "The effect of corruption on economic growth in the BRICS countries. A panel data analysis," Economic Development and Well-being Research Group Working Paper Series edwrg-03-2020, University of Johannesburg, College of Business and Economics, revised 2020.
    15. Nerajda Feruni & Eglantina Hysa & Mirela Panait & Irina Gabriela Rădulescu & Alina Brezoi, 2020. "The Impact of Corruption, Economic Freedom and Urbanization on Economic Development: Western Balkans versus EU-27," Sustainability, MDPI, vol. 12(22), pages 1-22, November.
    16. Zhang Zhuo & Almalki Sultan Musaad O & Bashir Muhammad & Sher Khan, 2021. "Underlying the Relationship Between Governance and Economic Growth in Developed Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 12(3), pages 1314-1330, September.
    17. Koffi Délali Kpognon & Henri Atangana Ondoa & Mamadou Bah & Peter Asare-Nuamah, 2022. "Fostering Labour Productivity Growth for Productive and Decent Job Creation in Sub-Saharan African Countries: the Role of Institutional Quality," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(3), pages 1962-1992, September.
    18. Anisah Alfada, 2019. "Corruption and Economic Growth in ASEAN Member Countries," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 65, pages 111-131, Desember.
    19. Lin, Xiaowei & Huang, Hung-Yi & Lee, Yun-Chi, 2023. "Proxy solicitation, ownership structure, and bank cash dividends," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 15-23.
    20. KPOGNON, Koffi & BAH, Mamadou, 2019. "Does institutional quality contribute to increasing labour productivity in sub-Saharan Africa? An empirical analysis," MPRA Paper 98674, University Library of Munich, Germany.
    21. Rajesh Barik & Sanjaya Kumar Lenka, 2023. "Does financial inclusion control corruption in upper-middle and lower-middle income countries?," Asia-Pacific Journal of Regional Science, Springer, vol. 7(1), pages 69-92, March.
    22. Olayinka Akanle & J.O. Adesina, 2015. "Corruption and the Nigerian Development Quagmire," Journal of Developing Societies, , vol. 31(4), pages 421-446, December.
    23. Advani, Bhavya & Pradhan, Ashis Kumar & Mohindra, Vinita & Sreenu, Nenavath, 2024. "Demystifying the nexus between Forest cover and happiness: A study of global economies," Forest Policy and Economics, Elsevier, vol. 167(C).

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    More about this item

    Keywords

    corruption; economic growth; institutional quality; bureaucratic; efficiency; political stability;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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