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Growth, public investment and corruption with failing institutions

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Author Info
David De La Croix () (CORE - Department of Economics - Université Catholique de Louvain)
Clara Delavallade () (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)

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Abstract

Corruption is thought to prevent poor countries from catching up with richer ones. We analyze one channel through which corruption hampers growth : public investment can be distorted in favor of specific types of spending for which rent-seeking is easier and better concealed. To study this distorsion, we propose a dynamic model where households vote for the composition of public spending, subject to an incentive constraint reflecting individuals' choice between productive activity and rent-seeking. In equilibrium, the structure of public investment is determined by the predatory technology and the distribution of political power. Among different regimes, the model shows a possible scenario of distortion without corruption in which there is no effective corruption but the possibility of corruption still distorts the allocation of public investment. We test the implications of the model on a set of countries using a two-stage least squares estimation. We find that developing countries with high predatory technology invest more in housing and physical capital in comparison with health and education. The reverse is true for developed countries.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne, Post-Print with number halshs-00129741_v2.

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Date of creation: May 2008
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Handle: RePEc:hal:cesptp:halshs-00129741_v2

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Keywords: Public investment optimal growth corruption political power.

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Cuong Le Van & Mathilde Maurel, 2006. "Education, corruption and growth in developing countries," Cahiers de la Maison des Sciences Economiques v06080, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
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