Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-05T14:21:41.322Z Has data issue: false hasContentIssue false
  • English
  • Français

INSTITUTIONS’ IMPACT ON THE CORRUPTION–GROWTH NEXUS: NONLINEARITIES AND TRANSMISSION CHANNELS

Published online by Cambridge University Press:  30 July 2019

Réda Marakbi ,
Camélia Turcu  and
Patrick Villieu
Réda Marakbi
Affiliation:
University of Orléans
Camélia Turcu*
Affiliation:
University of Orléans
Patrick Villieu
Affiliation:
University of Orléans
*
Address correspondence to: Camélia Turcu, University of Orléans, Laboratoire d’Économie d’Orléans (LEO) CNRS, Rue de Blois, 45067 Orleans, France. e-mail: [email protected]. Phone: 0033688421354
Get access Rights & Permissions [Opens in a new window]

Abstract

We analyze the channels through which institutional quality can impact the corruption–growth nexus. To do this, we develop an endogenous growth model and test its implications empirically, through panel data models using GMM and PSTR settings. Our sample consists of 136 developed and developing countries analyzed over the period 1984–2015. We show, both theoretically and empirically, that (i) the corruption–growth relation can be subject to nonlinearities highly influenced by countries’ institutional development; and (ii) private investment and public spending are two main channels through which institutional quality affects, positively or negatively, the relation between corruption and economic growth.

Keywords

CorruptionInstitutionsEndogenous growth modelGMMPSTR
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 1 , January 2021 , pp. 257 - 279
Copyright
© Cambridge University Press 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We would like to thank participants at the INFER/HeU Workshop on Applied Macroeconomics for insightful comments on a previous version of the paper. Many thanks to Ekrame Boubtane, Elena Dumitrescu, Makram El-Shagi, Jarko Fidrmuc, Pierre-Guillaume Meon, Kiril Tochkov, and to an anonymous referee for the constructive remarks and suggestions that helped us to improve the paper. All remaining errors are ours.

References

REFERENCES

Acemoglu, D., Johnson, S. and Robinson, J. A. (2005) Institutions as a fundamental cause of long-run growth. Handbook of Economic Growth 1, 385–472.CrossRefGoogle Scholar
Acemoglu, D. and Verdier, T. (2000) The choice between market failures and corruption. American Economic Review 90(1), 194–211.CrossRefGoogle Scholar
Aidt, T. (2003) Economic analysis of corruption: A survey. The Economic Journal 113(491), F632–F652.CrossRefGoogle Scholar
Aidt, T., Dutta, J. and Sena, V. (2008) Governance regimes, corruption and growth: Theory and evidence. Journal of Comparative Economics 36(2), 195–220.CrossRefGoogle Scholar
Akai, N., Horiuchi, Y. and Sakata, M. (2005) Short-run and long-run effects of corruption on economic growth: Evidence from state-level cross-section data for the United States. CIRJE-F-348 Disscussion Paper.Google Scholar
Amundsen, I. (1999) Political corruption: An introduction to the issues. Chr. Michelsen Institute.Google Scholar
Arellano, M. and Bond, S. (1991) Some tests of specification for panel data: Monte carlo evidence and an application to employment equations. The Review of Economic Studies 58(2), 277–297.CrossRefGoogle Scholar
Arellano, M. and Bover, O. (1995) Another look at the instrumental variable estimation of error-components models. Journal of Econometrics 68(1), 29–51.CrossRefGoogle Scholar
Aschauer, D. A. (1990) Is government spending stimulative? Contemporary Economic Policy 8(4), 30–46.CrossRefGoogle Scholar
Barro, R. J. (1990) Government spending in a simple model of endogeneous growth. Journal of Political Economy 98(5, Part 2), S103–S125.CrossRefGoogle Scholar
Bertrand, M., Djankov, R. Hanna, S. and Mullainathan, S. (2007) Obtaining a driver license in India: An experimental approach to studying corruption. The Quarterly Journal of Economics 122(4), 1639–1676.CrossRefGoogle Scholar
Blundell, R. and Bond, S. (1998) Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics 87(1), 115–143.CrossRefGoogle Scholar
Campos, N., Dimova, R. and Saleh, A. (2010) Whither Corruption? A Quantitative Survey of the Literature on Corruption and Growth. Technical report, CEPR Discussion Paper.Google Scholar
Chan, K. S. and Laffargue, J.-P. (2016) A dynamic model of taxation, corruption, and public investment in the dynastic cycle: The case of imperial China. Macroeconomic Dynamics 20(8), 2123–2147.CrossRefGoogle Scholar
Checherita-Westphal, C. and Rother, P. (2012) The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area. European Economic Review 56(7), 1392–1405.CrossRefGoogle Scholar
Cobham, A. (2005) Tax Evasion, Tax Avoidance and Development Finance. Queen Elizabeth House, Working Paper: No. 129.Google Scholar
Colombatto, E. (2003) Why is corruption tolerated? The Review of Austrian Economics 16(4), 363–379.CrossRefGoogle Scholar
D’Agostino, G., Dunne, J. P. and Pieroni, L. (2016) Government spending, corruption and economic growth. World Development 84, 190–205.CrossRefGoogle Scholar
De Soto, H. (1989) The Other Path. New York: Harper & Row.Google Scholar
De Vaal, A. and Ebben, W. (2011) Institutions and the relation between corruption and economic growth. Review of Development Economics 15(1), 108–123.CrossRefGoogle Scholar
Dimaria, C.-H. and Le Van, C. (2002) Optimal growth, debt, corruption, and R&D. Macroeconomic Dynamics 6(5), 597–613.CrossRefGoogle Scholar
Dzhumashev, R. (2014) Corruption and growth: The role of governance, public spending, and economic development. Economic Modelling 37, 202–215.CrossRefGoogle Scholar
Eggoh, J. and Khan, M. (2014) On the nonlinear relationship between inflation and economic growth. Research in Economics 68(2), 133–143.CrossRefGoogle Scholar
Ehrlich, I. and Lui, F. T. (1999) Bureaucratic corruption and endogenous economic growth. Journal of Political Economy 107(S6), 270–293.CrossRefGoogle Scholar
European Commission (2014) Report from the Commission to the Council and the European Parliament. EU Anti-corruption report.Google Scholar
Glaeser, E. L., La Porta, R.,Lopez-de Silanes, F. and Shleifer, A. (2004) Do institutions cause growth? Journal of Economic Growth 9(3), 271–303.CrossRefGoogle Scholar
Gonzalez, A., Terasvirta, T. and v. Dijk, D. (2005) Panel Smooth Transition Regression Models. Technical report, SSE/EFI Working Paper Series in Economics and Finance.CrossRefGoogle Scholar
Granger, C. W. and Terasvirta, T. (1993) Modelling Non-linear Economic Relationships. OUP Catalogue.Google Scholar
Huang, C.-J. (2016) Is corruption bad for economic growth? evidence from Asia-Pacific countries. The North American Journal of Economics and Finance 35, 247–256.CrossRefGoogle Scholar
Huntington, S. P. (1968) Modernization and corruption. In: Political Order in Changing Societies, pp. 59–71. New Haven, CT: Yale University Press.Google Scholar
ICRG (2015) ICRG Methodology. PRS Group.Google Scholar
Johnson, N. D., LaFountain, C. L. and Yamarik, S. (2011) Corruption is bad for growth (even in the United States). Public Choice 147(3–4), 377–393.CrossRefGoogle Scholar
Johnson, N. D., Ruger, J. Sorens, W. and Yamarik, S. (2014) Corruption, regulation, and growth: An empirical study of the United States. Economics of Governance 15(1), 51–69.CrossRefGoogle Scholar
Jones, C. I. (1995) R&D-based models of economic growth. Journal of Political Economy 103(4), 759–784.CrossRefGoogle Scholar
Klitgaard, R. (1988) Controlling Corruption. Berkeley, CA: University of California Press.CrossRefGoogle Scholar
Leff, N. H. (1964) Economic development through bureaucratic corruption. American Behavioral Scientist 8(3), 8–14.CrossRefGoogle Scholar
Levine, R. and Renelt, D. (1992) A sensitivity analysis of cross-country growth regressions. American Economic Review 82(4), 942–963.Google Scholar
Levy, D. (2007) Price adjustment under the table: Evidence on efficiency-enhancing corruption. European Journal of Political Economy 23(2), 423–447.CrossRefGoogle Scholar
Lopez-Villavicencio, A. and Mignon, V. (2011) On the impact of inflation on output growth: Does the level of inflation matter? Journal of Macroeconomics 33(3), 455–464.CrossRefGoogle Scholar
Lui, F. T. (1985) An equilibrium queuing model of bribery. Journal of Political Economy 93(4), 760–781.CrossRefGoogle Scholar
Mauro, P. (1995) Corruption and growth. The Quarterly Journal of Economics 110(3), 681–712.CrossRefGoogle Scholar
Mauro, P. (1997) Why Worry about Corruption? International Monetary Fund, vol. 6.CrossRefGoogle Scholar
Mendez, F. and Sepulveda, F. (2006) Corruption, growth and political regimes: Cross country evidence. European Journal of Political Economy 22(1), 82–98.CrossRefGoogle Scholar
Menuet, M., Minea, A. and Villieu, P. (2017) Deficit, monetization, and economic growth: A case for multiplicity and indeterminacy. Economic Theory 65(4), 1–35.Google Scholar
Meon, P.-G. and Sekkat, K. (2005) Does corruption grease or sand the wheels of growth? Public Choice 122(1–2), 69–97.CrossRefGoogle Scholar
Meon, P.-G. and Weill, L. (2010) Is corruption an efficient grease? World Development 38(3), 244–259.CrossRefGoogle Scholar
Minea, A. and Villieu, P. (2012) Persistent deficit, growth, and indeterminacy. Macroeconomic Dynamics 16(S2), 267–283.CrossRefGoogle Scholar
Nye, J. S. (1967) Corruption and political development: A cost-benefit analysis. American Political Science Review 61(2), 417–427.CrossRefGoogle Scholar
Rock, M. T. and Bonnett, H. (2004) The comparative politics of corruption: Accounting for the East Asian paradox in empirical studies of corruption, growth and investment. World Development 32(6), 999–1017.CrossRefGoogle Scholar
Roodman, D. (2009) How to do xtabond2: An introduction to difference and system GMM in Stata. Stata Journal 9(1), 86–136.CrossRefGoogle Scholar
Solow, R. M. (1957) Technical change and the aggregate production function. Review of Economics and Statistics 39(3), 312–320.CrossRefGoogle Scholar
Swaleheen, M. (2011) Economic growth with endogenous corruption: An empirical study. Public Choice 146(1), 23–41.CrossRefGoogle Scholar
Swan, T. W. (1956) Economic growth and capital accumulation. Economic Record 32(2), 334–361.CrossRefGoogle Scholar
Tanzi, V. and Davoodi, H. (1997) Corruption, public investment and growth. IMF Working Paper 97/139.CrossRefGoogle Scholar
Tanzi, V. and Davoodi, H. R. (2000) Corruption, Growth, and Public Finances. International Monetary Fund, 2000–2182.CrossRefGoogle Scholar
Van den Heuvel, G. (2005) The parliamentary enquiry on fraud in the Dutch construction industry collusion as concept between corruption and state-corporate crime. Crime, Law and Social Change 44(2), 133–151.CrossRefGoogle Scholar
Varese, F. (1997) The transition to the market and corruption in post-socialist Russia. Political Studies 45(3), 579–596.CrossRefGoogle Scholar
Williams, A. and Siddique, A. (2008) The use (and abuse) of governance indicators in economics: A review. Economics of Governance 9(2), 131–175.CrossRefGoogle Scholar
World Bank (1997) Helping Countries Combat Corruption: The Role of the World Bank. Technical report.Google Scholar
World Bank (2016) Control Of Corruption: Estimate. https://datacatalog.worldbank.org/control-corruption-estimate-0.Google Scholar