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Corruption and Investment Choices: A Panel Data Study

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  • Mushfiq us Swaleheen

Abstract

There is evidence in the literature that corruption lowers the level of investment and the productivity of capital stock in an economy. This paper extends the literature by presenting evidence that investment allocation decisions are affected in a significant way by corruption. The most commonly used measure of the efficiency of overall investment in an economy is the incremental capital output ratio (ICOR), measured by the ratio of gross investment to the change in the gross domestic product. The inverse of the ICOR measures the productivity of investment in an economy. When the known explanatory factors for inter‐country variation in the ICOR are taken into account, the incidence of corruption has a statistically significant negative effect on the efficiency of investment for a panel of 90–140 countries during 1995–2004. The strength of this effect increases with the incidence of corruption. The econometric model used is robust to unobserved and time‐invariant country fixed effects, feedbacks from current stochastic shocks to subsequent values of the determinants of investment efficiency, and the persistence of efficiency.

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  • Mushfiq us Swaleheen, 2007. "Corruption and Investment Choices: A Panel Data Study," Kyklos, Wiley Blackwell, vol. 60(4), pages 601-616, November.
    • Handle: RePEc:bla:kyklos:v:60:y:2007:i:4:p:601-616
    DOI: 10.1111/j.1467-6435.2007.00387.x
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    References listed on IDEAS

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    1. Daniel Kaufmann & Aart Kraay & Massimo Mastruzzi, 2003. "Governance Matters III: Governance Indicators for 1996-2002," Development and Comp Systems 0308001, University Library of Munich, Germany.
    2. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2003. "Government matters III : governance indicators for 1996-2002," Policy Research Working Paper Series 3106, The World Bank.
    3. Juan J. Ganuza & Esther Hauk, 2000. "Economic integration and corruption: The corrupt soul of the European Union," Economics Working Papers 482, Department of Economics and Business, Universitat Pompeu Fabra.
    4. World Bank, 2004. "World Development Indicators 2004," World Bank Publications - Books, The World Bank Group, number 13890.
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    Cited by:

    1. Ndiaye Cheikh Tidiane, 2019. "Corruption, Investment and Economic Growth in WAEMU Countries," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(4), pages 30-39, April.
    2. Ugur, Mehmet & Dasgupta, Nandini, 2011. "Corruption and economic growth: A meta-analysis of the evidence on low-income countries and beyond," MPRA Paper 31226, University Library of Munich, Germany, revised 31 May 2011.
    3. Kanat Abdulla, 2021. "Corrosive effects of corruption on human capital and aggregate productivity," Kyklos, Wiley Blackwell, vol. 74(4), pages 445-462, November.
    4. Sazzadul Arefin, 2019. "Geographic Endowment, Corruption, and Economic Development," Business and Economic Research, Macrothink Institute, vol. 9(1), pages 1-32, March.
    5. Iva Tomic, 2016. "What drives youth unemployment in Europe?," Working Papers 1601, The Institute of Economics, Zagreb.
    6. Devine, Avis & McCollum, Meagan & Orlova, Svetlana, 2022. "Cleaning up corruption and the climate: The role of green building certifications," Finance Research Letters, Elsevier, vol. 47(PA).
    7. Matthias Busse & Ceren Erdogan & Henning Mühlen, 2016. "China's Impact on Africa – The Role of Trade, FDI and Aid," Kyklos, Wiley Blackwell, vol. 69(2), pages 228-262, May.
    8. Bakari, Sayef, 2022. "The Nexus between Domestic Investment and Economic Growth in Developed Countries: Do Exports matter?," MPRA Paper 114394, University Library of Munich, Germany.
    9. Tima T. Moldogaziev & Cheol Liu & Martin J. Luby, 2017. "Public Corruption in the U.S. States and Its Impact on Public Debt Pricing," Kyklos, Wiley Blackwell, vol. 70(2), pages 306-329, May.
    10. Juan Camilo Galvis Ciro & Guillermo David Hincapié-Vélez, 2022. "Los efectos de la corrupción sobre el gasto público en los departamentos de Colombia," Apuntes del Cenes, Universidad Pedagógica y Tecnológica de Colombia, vol. 41(73), pages 227-262, February.
    11. Tolu Olarewaju & Jagannadha Pawan Tamvada & Sharin McDowall, 2021. "Generalised Trust and Relation Centrism for Corruption: Evidence from Low- and Middle-Income Countries," Discussion Papers 21-01, Department of Economics, University of Birmingham.
    12. Iva TOMIĆ, 2018. "What drives youth unemployment in Europe? Economic vs non‐economic determinants," International Labour Review, International Labour Organization, vol. 157(3), pages 379-408, September.

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