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Corruption, governance, investment and growth in emerging markets

Author

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  • Stephen Everhart
  • Jorge Martinez- Vazquez
  • Robert McNab

Abstract

The article investigates the potential impact of corruption on economic growth by examining the effect that corruption may have on several significant determinants of economic growth, namely, investment in human, private and public capital, and on governance. Our theoretical approach allows for corruption to influence economic growth directly and indirectly through different investment and governance channels. All previous empirical work on this issue has been based on national income and product accounts (NIPA) data, which do not normally break down gross domestic investment into its private and public sector, and if they do, they misclassify investment by public enterprises as private investment, potentially biasing empirical findings. In this article we use a data set from the International Finance Corporation that bypasses these problems. We find that the impact of corruption on the level of public investment appears to be more ambiguous than it has been found in the previous literature. We, however, find that the impact of corruption on the accumulation of private capital is significantly more damaging than what has been previously found. We also find that the impact of corruption on governance is unambiguously negative, which further deters economic growth.

Suggested Citation

  • Stephen Everhart & Jorge Martinez- Vazquez & Robert McNab, 2009. "Corruption, governance, investment and growth in emerging markets," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1579-1594.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:13:p:1579-1594
    DOI: 10.1080/00036840701439363
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    References listed on IDEAS

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    3. Stephen S. Everhart & Mariusz A. Sumlinski, 2001. "Trends in Private Investment in Developing Countries : Statistics for 1970-2000 and the Impact on Private Investment of Corruption and the Quality of Public Investment," World Bank Publications - Books, The World Bank Group, number 13989.
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    6. Everhart, S.S. & Sumlinski, M.A., 2001. "Trends in Private Investment in Developing countries, Statistics for 1970-200 and the Impact on Private Investment of Corruption and the Quality of Public Investment," Papers 44, World Bank - International Finance Corporation.
    7. Axel Dreher & Thomas Herzfeld, 2005. "The Economic Costs of Corruption: A Survey and New Evidence," Public Economics 0506001, University Library of Munich, Germany.
    8. Bai, Chong-en & Wei, Shang-Jin, 2001. "The quality of bureaucracy and capital account policies," Policy Research Working Paper Series 2575, The World Bank.
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