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Why does Public Investment Fail to Raise Economic Growth? The Role of Corruption

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  • M. Emranul Haque
  • Richard Kneller

Abstract

type="main"> In an endogenous growth model with information asymmetry between the government and the bureaucracy, the bureaucrats can falsely report of high-quality high-cost procurement, while providing low-quality low-cost product. This reduces the quality of public services, but inflates the public spending, which in effect reduces growth. We test our results by using three-stage least squares method in a panel set up for a system of four equations on growth, public investment, corruption and private investment. Our primary results are twofold. First, corruption increases public investment. Second, corruption reduces the returns to public investment and makes it ineffective in raising economic growth.

Suggested Citation

  • M. Emranul Haque & Richard Kneller, 2015. "Why does Public Investment Fail to Raise Economic Growth? The Role of Corruption," Manchester School, University of Manchester, vol. 83(6), pages 623-651, December.
  • Handle: RePEc:bla:manchs:v:83:y:2015:i:6:p:623-651
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    File URL: http://hdl.handle.net/10.1111/manc.12068
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    1. repec:prg:jnlpep:v:preprint:id:647:p:1-19 is not listed on IDEAS
    2. King Yoong Lim, 2017. "The Dynamics of Corruption and Unemployment in a Growth Model with Heterogeneous Labour," Working Papers 198144263, Lancaster University Management School, Economics Department.
    3. repec:eee:ecanpo:v:60:y:2018:i:c:p:27-42 is not listed on IDEAS
    4. RAMDE, Fousseni, 2015. "Institution, investissements et croissance dans l’UEMOA: une approche panel VAR
      [Institution, investments and growth in WAEMU: a panel VAR approach]
      ," MPRA Paper 82417, University Library of Munich, Germany, revised 01 Jun 2017.
    5. repec:prg:jnlpep:v:2018:y:2018:i:3:id:647:p:251-269 is not listed on IDEAS
    6. repec:eee:wdevel:v:103:y:2018:i:c:p:323-335 is not listed on IDEAS

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