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Corruption and Economic Growth: The Transmission Channels

Mohamed Dridi ()

MPRA Paper from University Library of Munich, Germany

Abstract: The relationship between corruption and economic growth has been the focus of numerous studies. However, no consensus seems to exist on the mechanisms via which corruption should reduce growth. The aim of this paper is to identify the transmission channels through which corruption is likely to affect economic growth. Unlike most previous analysis in this area that used the decomposition method [Mo (2001), Pellegrini and Gerlagh (2004) and, Pellegrini (2011)], we employ a Channel Methodology [developed by Tavares and Wacziarg (2001) and applied by Wacziarg (2001) and, more recently, by Lorentzen, McMillan and Wacziarg (2008)]. This methodology based on a system of simultaneous equations to evaluate the effects of corruption on various determinants of economic growth, will allow us to show how corruption affects growth via each possible channel. Our results suggest that the negative effect of corruption on economic growth is mainly transmitted by its impact on human capital and political instability.

Keywords: Corruption; Economic Growth; Simultaneous Equations (search for similar items in EconPapers)
JEL-codes: C30 D73 O40 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-fdg, nep-pbe and nep-pol
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Published in Journal of Business Studies Quarterly 4.4(2013): pp. 121-152

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