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Is corruption grease, grit or a gamble? Corruption increases variance of productivity across countries

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  • Antti Saastamoinen
  • Timo Kuosmanen

Abstract

The effect of corruption on economic growth has attracted interest in empirical development economics. The conventional view of corruption as impediment for growth has been challenged by the 'grease-on-the-wheels' hypothesis. We take a new perspective on the issue and suggest corruption as macro risk, referred to as a 'gamble' hypothesis. Using cross-country data and two alternative indicators of corruption, we find corruption to be a significant driver of heteroscedasticity in total productivity. This supports the new gamble hypothesis. We also note some misleading interpretations in the previously published frontier applications. To avoid these shortcomings, we apply a flexible semi-nonparametric estimator.

Suggested Citation

  • Antti Saastamoinen & Timo Kuosmanen, 2014. "Is corruption grease, grit or a gamble? Corruption increases variance of productivity across countries," Applied Economics, Taylor & Francis Journals, vol. 46(23), pages 2833-2849, August.
    • Handle: RePEc:taf:applec:v:46:y:2014:i:23:p:2833-2849
    DOI: 10.1080/00036846.2014.914149
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    1. Robert E. Baldwin, 2004. "Openness and Growth: What's the Empirical Relationship?," NBER Chapters, in: Challenges to Globalization: Analyzing the Economics, pages 499-521, National Bureau of Economic Research, Inc.
    2. Laurens Cherchye & Wim Moesen, 2003. "Institutional Infrastructure and Economic Performance: Levels versus Catching Up and Frontier Shifts," Public Economics Working Paper Series ces0314, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics.
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    Cited by:

    1. Lurdes Martins & Jorge Cerdeira & Aurora A.C. Teixeira, 2020. "Does corruption boost or harm firms’ performance in developing and emerging economies? A firm‐level study," The World Economy, Wiley Blackwell, vol. 43(8), pages 2119-2152, August.
    2. Hien Thu Pham & Nhan Buu Phan & Shino Takayama, 2020. "Productivity, Efficiency and Firm Size Distribution: Evidence from Vietnam," Discussion Papers Series 617, School of Economics, University of Queensland, Australia.

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