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Corruption And Growth Under Weak Identification

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  • PHILIP SHAW
  • MARINA‐SELINI KATSAITI
  • MARIUS JURGILAS

Abstract

The goal of this paper is to revisit the influential work of Mauro [1995] focusing on the strength of his results under weak identification. He finds a negative impact of corruption on investment and economic growth that appears to be robust to endogeneity when using two-stage least squares (2SLS). Since the inception of Mauro [1995], much literature has focused on 2SLS methods revealing the dangers of estimation and thus "traditional" types of inference under weak identification. We reproduce the original results of Mauro [1995] with a high level of confidence and show that the instrument used in the original work is in fact "weak" as defined by Staiger and Stock [1997]. Thus we update the analysis using a test statistic robust to weak instruments. Our results suggest that under Mauro's original model there is a high probability that the parameters of interest are locally almost unidentified in multivariate specifications. To address this problem, we also investigate other instruments commonly used in the corruption literature and obtain similar results. After identifying an instrument with sufficient strength we fail to reject a zero effect of corruption on investment and economic growth.
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Suggested Citation

  • Philip Shaw & Marina‐Selini Katsaiti & Marius Jurgilas, 2011. "Corruption And Growth Under Weak Identification," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 264-275, January.
  • Handle: RePEc:bla:ecinqu:v:49:y:2011:i:1:p:264-275
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    1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
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    20. Summers, Robert & Heston, Alan, 1988. "A New Set of International Comparisons of Real Product and Price Levels Estimates for 130 Countries, 1950-1985," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(1), pages 1-25, March.
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    Cited by:

    1. Noel Johnson & Courtney LaFountain & Steven Yamarik, 2011. "Corruption is bad for growth (even in the United States)," Public Choice, Springer, vol. 147(3), pages 377-393, June.
    2. repec:prg:jnlpep:v:2018:y:2018:i:3:id:647:p:251-269 is not listed on IDEAS
    3. repec:spr:ecogov:v:17:y:2016:i:1:p:71-100 is not listed on IDEAS
    4. Noel Johnson & William Ruger & Jason Sorens & Steven Yamarik, 2014. "Corruption, regulation, and growth: an empirical study of the United States," Economics of Governance, Springer, vol. 15(1), pages 51-69, February.
    5. Biru Paksha Paul, 2010. "Does corruption foster growth in Bangladesh?," International Journal of Development Issues, Emerald Group Publishing, vol. 9(3), pages 246-262, September.
    6. Eiji Yamamura, 2011. "Corruption and Fertility: Evidence from OECD countries," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 54(2), pages 34-57.
    7. Raffaella Coppier & Mauro Costantini & Gustavo Piga, 2013. "The Role Of Monitoring Of Corruption In A Simple Endogenous Growth Model," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 1972-1985, October.
    8. Nikita Zakharov, 2017. "Does Corruption Hinder Investment? Evidence from Russian Regions," Discussion Paper Series 33, Department of International Economic Policy, University of Freiburg, revised Feb 2017.
    9. Marina Selini Katsaiti, 2012. "Obesity and happiness," Applied Economics, Taylor & Francis Journals, vol. 44(31), pages 4101-4114, November.
    10. repec:prg:jnlpep:v:preprint:id:647:p:1-19 is not listed on IDEAS
    11. Shaw Philip & Cohen Michael Andrew & Chen Tao, 2016. "Nonparametric Instrumental Variable Estimation in Practice," Journal of Econometric Methods, De Gruyter, vol. 5(1), pages 153-177, January.
    12. El Anshasy, Amany A. & Katsaiti, Marina-Selini, 2013. "Natural resources and fiscal performance: Does good governance matter?," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 285-298.
    13. repec:eee:wdevel:v:103:y:2018:i:c:p:323-335 is not listed on IDEAS
    14. Zohal Hessami & Silke Uebelmesser, 2016. "A political-economy perspective on social expenditures: corruption and in-kind versus cash transfers," Economics of Governance, Springer, vol. 17(1), pages 71-100, February.
    15. Ahmad, Mahyudin & Hall, Stephen G., 2014. "Explaining social capital effects on growth and property rights via trust-alternative variables," MPRA Paper 58358, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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