Impact of inter-country corruption differences on wages and economic growth

Óscar Afonso () and Mafalda Pinho
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Óscar Afonso: University of Porto
Mafalda Pinho: University of Porto

Economic Change and Restructuring, 2024, vol. 57, issue 2, No 57, 46 pages

Abstract: Abstract Theoretically and numerically, this paper attempts to examine the macroeconomic effects of corruption by using the two-country directed technical change model. At a single-country level, an increase in corruption levels in one country leads to an intra-country decrease in the demand for labor and wages and a permanent slowdown of technological-knowledge progress and economic growth. At the inter-country level, a country-specific increase in corruption enlarges inter-country wage and technological-knowledge gaps. Overall, higher corruption levels in one country are detrimental to global economic growth. Through calibration, it is shown that when the differences between the corruption of non-corrupt and corrupt countries increase: (1) economic growth is mainly stimulated in the corrupt countries India, Mexico, and Brazil; (2) the lowest wage inequality compared to non-corrupt countries is observed in the corrupt countries Greece, Portugal, and Spain.

Keywords: Corruption; Wages; Economic growth (search for similar items in EconPapers)
JEL-codes: D73 J31 O11 O30 O57 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10644-024-09662-5

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