Growth, Governance and Corruption in the Presence of Threshold Effects: Theory and Evidence

Toke S Aidt (), Jaysari Dutta and Vania Sena

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: We study the joint determination of corruption and economic growth. Our model can generate multiple equilibria when complementarity between corruption and growth is sufficiently strong. Our estimates of the impact of corruption on growth take into account that corruption is endogenous and that there may exist different growth/corruption regimes. In a cross section of countries in the 1990s,we identify two regimes, conditional on the quality of political institutions. In the regime with high quality political institutions, corruption has a negative impact on growth. In the regime with low quality institutions, corruption has, overall, little impact on growth, but, if anything, the impact is, surprisingly, positive.

Keywords: Growth; corruption; threshold effects; governance; democracy; corruption. (search for similar items in EconPapers)
JEL-codes: D72 D82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-pol and nep-reg
Date: 2005-09
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Persistent link: http://EconPapers.repec.org/RePEc:cam:camdae:0540

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