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Short-run and Long-run Effects of Corruption on Economic Growth: Evidence from State-Level Cross-Section Data for the United States

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Author Info
Nobuo Akai (School of Business Administration, University of Hyogo)
Yusaku Horiuchi (Asia Pacific School of Economics and Government, Australian National University)
Masayo Sakata (Faculty of Politics, Economics and Law, Osaka International University)
Abstract

Theoretical studies suggest that corruption may counteract government failure and promote economic growth in the short run, given exogenously determined suboptimal bureaucratic rules and regulations. As the government failure is itself a function of corruption, however, corruption should have detrimental effects on economic growth in the long run. In this paper, we measure the rate of economic growth for various time spans - short (1998?2000), middle (1995-2000) and long (1991-2000) - using previously uninvestigated state-level cross-section data for the United States. Our two-stage least square (2SLS) estimates with a carefully selected set of instruments show that the effect of corruption on economic growth is indeed negative and statistically significant in the middle and long spans but insignificant in the short span.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-348.

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Length: 31 pages
Date of creation: Jun 2005
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Handle: RePEc:tky:fseres:2005cf348

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