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Corruption and economic growth: does the size of the government matter?

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  • António Afonso

    (Universidade de Lisboa
    UECE – Research Unit on Complexity and Economics is supported by Fundação para a Ciência e a Tecnologia (grant number UIDB/05069/2020))

  • Eduardo Sá Fortes Leitão Rodrigues

    (Universidade Federal Rural Do Rio de Janeiro)

Abstract

Corruption is often a source of contentious debate, covering different areas of knowledge, such as philosophy and sociology. In this paper we assess the effects of corruption on economic activity and highlight the relevance of the size of the government. We use dynamic models and the generalised method of moments approach for a panel of 48 countries, and as a measure of corruption the Transparency International's Corruption Perceptions Index, from 2012 to 2019. We find a significant adverse effect of corruption on the level and growth of GDP per capita, but that large governments benefit less from reducing corruption. Furthermore, developing economies, regardless of government size, benefit less from reducing corruption, while government size is not sufficient to explain the influence of corruption on economic activity, although the level of effectiveness of public services is crucial. Finally, our findings suggest that private investment is a potential transmission channel for corruption.

Suggested Citation

  • António Afonso & Eduardo Sá Fortes Leitão Rodrigues, 2022. "Corruption and economic growth: does the size of the government matter?," Economic Change and Restructuring, Springer, vol. 55(2), pages 543-576, May.
    • Handle: RePEc:kap:ecopln:v:55:y:2022:i:2:d:10.1007_s10644-021-09338-4
    DOI: 10.1007/s10644-021-09338-4
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    Cited by:

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    More about this item

    Keywords

    Corruption; Economic growth; Government size; Generalised method of moments; Forward orthogonal deviations;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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