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Corruption and Economic Growth: The Transmission Channels

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  • Dridi, Mohamed

Abstract

The relationship between corruption and economic growth has been the focus of numerous studies. However, no consensus seems to exist on the mechanisms via which corruption should reduce growth. The aim of this paper is to identify the transmission channels through which corruption is likely to affect economic growth. Unlike most previous analysis in this area that used the decomposition method [Mo (2001), Pellegrini and Gerlagh (2004) and, Pellegrini (2011)], we employ a Channel Methodology [developed by Tavares and Wacziarg (2001) and applied by Wacziarg (2001) and, more recently, by Lorentzen, McMillan and Wacziarg (2008)]. This methodology based on a system of simultaneous equations to evaluate the effects of corruption on various determinants of economic growth, will allow us to show how corruption affects growth via each possible channel. Our results suggest that the negative effect of corruption on economic growth is mainly transmitted by its impact on human capital and political instability.

Suggested Citation

  • Dridi, Mohamed, 2013. "Corruption and Economic Growth: The Transmission Channels," MPRA Paper 47873, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:47873
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    2. Asiye Tutuncu & Yasar Bayraktar, 2024. "The effect of democracy and corruption paradox on economic growth: MINT countries," Economic Change and Restructuring, Springer, vol. 57(4), pages 1-25, August.
    3. 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.
    4. J. Muzurura, 2019. "Foreign Direct Investment in Zimbabwe: The Role of Uncertainty, Exports, Cost of Capital, Corruption and Market Size," The Economics and Finance Letters, Conscientia Beam, vol. 6(1), pages 9-24.
    5. Cuicui Ding & Khatib Ahmad Khan & Hauwah K. K. AbdulKareem & Siddharth Kumar & Leon Moise Minani & Shujaat Abbas, 2024. "Towards a healthier future for the achievement of SDGs: unveiling the effects of agricultural financing, energy poverty, human capital, and corruption on malnutrition," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-12, December.
    6. Hamdi, Helmi & Hakimi, Abdelaziz, 2015. "Corruption, FDI and Growth: All the truths of a corrupted regime before and after the social upsurge in Tunisia," MPRA Paper 63748, University Library of Munich, Germany.
    7. Dokas, Ioannis & Panagiotidis, Minas & Papadamou, Stephanos & Spyromitros, Eleftherios, 2023. "Does innovation affect the impact of corruption on economic growth? International evidence," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 1030-1054.
    8. Farooq, Abdul & Shahbaz, Muhammad & Arouri, Mohamed & Teulon, Frédéric, 2013. "Does corruption impede economic growth in Pakistan?," Economic Modelling, Elsevier, vol. 35(C), pages 622-633.
    9. Andrei S. Akhremenko & Alexander Petrov, 2014. "Efficiency, Policy Selection, And Growth In Democracy And Autocracy: A Formal Dynamical Model," HSE Working papers WP BRP 16/PS/2014, National Research University Higher School of Economics.
    10. Şerife Özşahin & Gülbahar Üçler, 2017. "The Consequences of Corruption on Inflation in Developing Countries: Evidence from Panel Cointegration and Causality Tests," Economies, MDPI, vol. 5(4), pages 1-15, December.
    11. 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.
    12. Dwiputri, Inayati Nuraini & Arsyad, Lincolin & Pradiptyo, Rimawan, 2018. "The corruption-income inequality trap: A study of Asian countries," Economics Discussion Papers 2018-81, Kiel Institute for the World Economy (IfW Kiel).
    13. Rana Ejaz Ali Khan & Hafiza Maria Naeem, 2020. "Corruption, Income Inequality and Human Resource Development in Developing Economies," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 8(4), pages 248-259, December.
    14. Nguyen, Ngoc Anh & Nguyen, Ngoc-Minh & Tran-Nam, Binh, 2014. "Corruption and economic growth, with a focus on Vietnam," MPRA Paper 84728, University Library of Munich, Germany, revised 2015.
    15. 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.
    16. Saidi, Hichem & El Montasser, Ghassen & Ajmi, Noomen, 2018. "Renewable Energy, Quality of Institutions and Economic Growth in MENA Countries: a Panel Cointegration Approach," MPRA Paper 84055, University Library of Munich, Germany.
    17. Hbib Sekrafi & Asma Sghaier, 2018. "Examining the Relationship Between Corruption, Economic Growth, Environmental Degradation, and Energy Consumption: a Panel Analysis in MENA Region," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 9(3), pages 963-979, September.

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    More about this item

    Keywords

    Corruption; Economic Growth; Simultaneous Equations;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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