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Corruption and economic growth in Latin America and the Caribbean

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  • Lucas Dutra de Paulo
  • Ricardo Carvalho de Andrade Lima
  • Robson Tigre

Abstract

In this paper, we investigate the effect of corruption on the economic development of the Latin American and Caribbean countries. Using panel data covering the period from 2000 to 2018 and leveraging on two‐way fixed‐effect and system generalized method of moments estimators, we show that a one standard deviation increase in corruption, as measured by the reversed Transparency International's corruption perception index, is associated with a decrease of 12.2% in gross domestic product per capita and a decrease of 3.05% in economic growth. This supports the view that corruption “sands the wheels” of the development of Latin American and Caribbean countries rather than “grease the wheels” perspective that corruption may help compensate for bad governance. We also assess the potential mechanisms through which corruption affects economic performance, providing evidence that corruption is associated with lower investment in physical capital and lower foreign investment flow. Finally, a panel Granger causality test indicates a bidirectional causality between higher corruption and lower economic development.

Suggested Citation

  • Lucas Dutra de Paulo & Ricardo Carvalho de Andrade Lima & Robson Tigre, 2022. "Corruption and economic growth in Latin America and the Caribbean," Review of Development Economics, Wiley Blackwell, vol. 26(2), pages 756-773, May.
    • Handle: RePEc:bla:rdevec:v:26:y:2022:i:2:p:756-773
    DOI: 10.1111/rode.12859
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    Cited by:

    1. Nandika Sanath Kumanayake & Ajantha Sisira Kumara & Asankha Pallegedara, 2023. "The nexus between public sector corruption and private sector efficiency: Evidence from worldwide firm‐level data," Review of Development Economics, Wiley Blackwell, vol. 27(2), pages 1056-1077, May.
    2. Abida Naurin, 2023. "Is Corruption Perception Index Biased? An Ethnicity Based Analysis," PIDE-Working Papers 2023:11, Pakistan Institute of Development Economics.
    3. Abida Naurin, 2024. "Is Corruption Perception Index Biased? An Ethnicity Based Analysis (Policy)," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 63(1), pages 123-131.

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