Corruption and growth: a complex relationship

This paper investigates the corruption-growth relationship in a sample of 146 countries for the period – 1984-2009. While negative effects of corruption on growth have drawn economists’ interest in recent years, our main contribution is to examine the effects by employing the hierarchical polynomial regression to evaluate the relationship after controlling economic and institutional factors.

The results are estimated using panel generalized methods of moments.

The results challenge some of the findings that negative growth-corruption association in the literature but also provide some new inferences. The findings reflect that corruption is not always growth-inhibitory; for some countries it is growth-enhancing, which supports the “greasing-the-wheels” hypothesis.

The paper investigates the growth-corruption relationship using panel generalised methods of moments. Our results suggest that a cubic function best fitted the data. The finding suggests that in the medium corrupt countries corruption stimulates growth by reducing red-tape.