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The Impact of Corruption on Economic Development of Bangladesh:Evidence on the Basis of an Extended Solow Model

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  • Pulok, Mohammad Habibullah
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    Abstract

    The purpose of this thesis is to examine the long run relationship between economic growth and corruption in Bangladesh over the period 1984-2008. In this study, I have extended the neoclassical model of economic growth by Solow (1956) including human capital and public sector explicitly at first. Then, I have incorporated corruption into the augmented model using a specific functional form for total factor productivity and three other channels to show impact of corruption on real GDP per capita. To investigate empirically the existence of a long run relationship or co-integration between corruption and real GDP per capita, I have used Auto-Regressive Distributed Lag (ARDL) Bounds Test method. The results of co-integration test confirms that there is a long run relation among corruption, GDP per capita and other determinants of GDP over the study period. The long run estimates indicate that corruption has direct negative impact on per capita GDP i.e. economic development of Bangladesh.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28755.

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    Date of creation: 15 Sep 2010
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    Handle: RePEc:pra:mprapa:28755

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    Keywords: ARDL Bounds test; Co-Integration; Corruption; Economic Growth; Neoclassical Model;

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    1. Isaac Ehrlich & Francis T. Lui, 1999. "Bureaucratic Corruption and Endogenous Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages S270-S293, December.
    2. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    3. Robert J. Barro, 1996. "Determinants of Economic Growth: A Cross-Country Empirical Study," NBER Working Papers 5698, National Bureau of Economic Research, Inc.
    4. Barreto, Raul A., 2000. "Endogenous corruption in a neoclassical growth model," European Economic Review, Elsevier, vol. 44(1), pages 35-60, January.
    5. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
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    8. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
    9. Rahman, Aminur & Kisunko, Gregory & Kapoor, Kapil, 2000. "Estimating the effects of corruption - implications for Bangladesh," Policy Research Working Paper Series 2479, The World Bank.
    10. Edgardo Campos, J. & Lien, Donald & Pradhan, Sanjay, 1999. "The Impact of Corruption on Investment: Predictability Matters," World Development, Elsevier, vol. 27(6), pages 1059-1067, June.
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    12. Lorenzo Pellegrini & Reyer Gerlagh, 2004. "Corruption's Effect on Growth and its Transmission Channels," Kyklos, Wiley Blackwell, vol. 57(3), pages 429-456, 08.
    13. Mauro, Paolo, 1998. "Corruption and the composition of government expenditure," Journal of Public Economics, Elsevier, vol. 69(2), pages 263-279, June.
    14. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1993. "Why Is Rent-Seeking So Costly to Growth?," American Economic Review, American Economic Association, vol. 83(2), pages 409-14, May.
    15. Axel Dreher & Thomas Herzfeld, 2005. "The Economic Costs of Corruption: A Survey and New Evidence," Public Economics 0506001, EconWPA.
    16. Mo, Pak Hung, 2001. "Corruption and Economic Growth," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 66-79, March.
    17. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
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