Efficient Corruption? Testing the hypothesis in African countries

Keita Kouramoudou and Hannu Laurila
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Hannu Laurila: School of Management, University of Tampere

No 1699, Working Papers from Tampere University, Faculty of Management and Business, Economics

Abstract: The paper is an econometric study of the economic effects of corruption in African countries. In economic literature, the mainstream view is that corruption is plainly detrimental (the Sanding the Wheels Hypothesis, SWH). Still, efficient corruption gains considerable support, too, particularly in the context of bad governance (the Greasing the Wheels Hypothesis, GWH). In this paper, the effects of corruption on Gross Domestic Product (GDP per capita) and investments (Investment to GDP Ratio) are estimated with respect to several indicators that measure the quality of governmental and social institutions. The paper finds substantial proof for GWH. Corruption enhances economic growth in countries suffering from problems in public management, business environment, infrastructure, or rural sector. Corruption fosters investments in countries encountering shortcomings in terms of safety and legislation, or political participation and human rights. Corruption has positive effects on both growth and investments, if public health, social welfare, or education are flawed by bad institutions. To sum up, while SWH holds in the big picture, GWH is also valid for many African economies with depressing socioeconomic conditions. Therefore, efforts should be put rather on reinforcing institutions than on plain battle against corruption.

Keywords: corruption; growth; institutions; investments (search for similar items in EconPapers)
JEL-codes: D73 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2016-01
New Economics Papers: this item is included in nep-afr and nep-pol
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http://urn.fi/URN:ISBN:978-952-03-0061-6 First version, 2016 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:tam:wpaper:1699

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