THE IMPACT OF DEMOCRACY AND CORRUPTION ON THE DEBT-GROWTH RELATIONSHIP IN DEVELOPING COUNTRIES

Joao Jalles

Journal of Economic Development, 2011, vol. 36, issue 4, 41-72

Abstract: The quality of governance, and in particular of the control of corruption and the level of democracy, is tested as a factor influencing the relationship between external debt (borrowing opportunities/constraints) and economic growth in a panel of 72 developing countries over the 1970-2005 period. Countries with lower corruption seem to be able to use and manage their debt better. Moreover, in countries with lower levels of corruption both the positive and negative effects of debt on growth, modelled with non-linear specifications, are significant. Furthermore, evidence cannot support a clear Debt-Laffer curve in our sample. The level of debt at which the effect of debt on growth becomes negative is also higher in countries with lower corruption levels. Finally, panel Granger-causality tests only weakly support the claim that causality runs from debt/institutional quality to growth. Despite our somewhat ambiguous results we conjecture some policy implications within the HIPC initiative and donor¡¯s approach to governance issues.

Keywords: Fixed-Effects; System-GMM; Granger-Causality; Political Rights; Governance (search for similar items in EconPapers)
JEL-codes: E02 E60 F30 F43 H63 O11 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (35)

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Persistent link: https://EconPapers.repec.org/RePEc:jed:journl:v:36:y:2011:i:4:p:41-72

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