Government Spending, Corruption and Economic Growth

d’Agostino, Giorgio, John Dunne and Luca Pieroni
Authors registered in the RePEc Author Service: Giorgio d'Agostino

World Development, 2016, vol. 84, issue C, 190-205

Abstract: There is considerable debate over the effects of both corruption and government spending on growth, but few studies have considered how the interaction between them might affect economic growth. This paper provides a contribution to the debate, starting wiGth an endogenous growth model and extending it to account for the effects of corruption on components of government spending, namely military and investment spending. It then illustrates the non-negligible indirect effects of corruption on military spending and government investment expenditure using model simulations. The resulting model is then estimated on a comprehensive panel of 106 countries and the results show that the interactions between corruption and investment and corruption and military spending have strong negative impacts on economic growth. The results also indicate important complementarities between corruption and military spending, suggesting that combating corruption will not only have direct positive effects, but is also likely to have positive indirect effects, through reducing the size of the negative impact of the military burden. They are also found to be robust across different measures of corruption, levels of economic development and groupings of countries. This suggests that policies to reduce corruption, combined with those to reduce military burdens, such as regional security agreements, would have a considerable impact on economic growth.

Keywords: corruption; government spending; development economics; panel data (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (104)

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Related works:
Working Paper: Government spending, corruption and economic growth (2012)
Working Paper: Government spending, corruption and economic growth (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:84:y:2016:i:c:p:190-205

DOI: 10.1016/j.worlddev.2016.03.011

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