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Government Spending, Corruption and Economic Growth

Author

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  • d’Agostino, Giorgio
  • Dunne, J. Paul
  • Pieroni, Luca

Abstract

There is considerable debate over the effects of both corruption and government spending on growth, but few studies have considered how the interaction between them might affect economic growth. This paper provides a contribution to the debate, starting wiGth an endogenous growth model and extending it to account for the effects of corruption on components of government spending, namely military and investment spending. It then illustrates the non-negligible indirect effects of corruption on military spending and government investment expenditure using model simulations. The resulting model is then estimated on a comprehensive panel of 106 countries and the results show that the interactions between corruption and investment and corruption and military spending have strong negative impacts on economic growth. The results also indicate important complementarities between corruption and military spending, suggesting that combating corruption will not only have direct positive effects, but is also likely to have positive indirect effects, through reducing the size of the negative impact of the military burden. They are also found to be robust across different measures of corruption, levels of economic development and groupings of countries. This suggests that policies to reduce corruption, combined with those to reduce military burdens, such as regional security agreements, would have a considerable impact on economic growth.

Suggested Citation

  • d’Agostino, Giorgio & Dunne, J. Paul & Pieroni, Luca, 2016. "Government Spending, Corruption and Economic Growth," World Development, Elsevier, vol. 84(C), pages 190-205.
  • Handle: RePEc:eee:wdevel:v:84:y:2016:i:c:p:190-205
    DOI: 10.1016/j.worlddev.2016.03.011
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    Cited by:

    1. Ryan A. Compton & Bryan Paterson, 2016. "Military Spending and Growth: The Role of Institutions," Defence and Peace Economics, Taylor & Francis Journals, vol. 27(3), pages 301-322, June.
    2. repec:eee:jebusi:v:96:y:2018:i:c:p:42-58 is not listed on IDEAS
    3. Sorin-Daniel, MANOLE & Raluca, Erdniç, 2014. "Assessing The Impact Of Corruption Upon The Romanian Economy," Management Strategies Journal, Constantin Brancoveanu University, vol. 24(2), pages 4-11.
    4. Giorgio d’Agostino & J. Paul Dunne & Luca Pieroni, 2017. "Does Military Spending Matter for Long-run Growth?," Defence and Peace Economics, Taylor & Francis Journals, vol. 28(4), pages 429-436, July.
    5. Eunji Kim & Yoonhee Ha & Sangheon Kim, 2017. "Public Debt, Corruption and Sustainable Economic Growth," Sustainability, MDPI, Open Access Journal, vol. 9(3), pages 1-30, March.
    6. d'Agostino, Giorgio & Scarlato, Margherita, 2016. "Institutions, Innovation and Economic Growth in European Countries," MPRA Paper 72427, University Library of Munich, Germany.
    7. Günther G. Schulze & Nikita Zakharov, 2018. "Corruption in Russia - Historic Legacy and Systemic Nature," CESifo Working Paper Series 6864, CESifo Group Munich.
    8. El Hamma Imad, 2017. "Do political institutions improve the effect of remittances on economic growth? Evidence from South-Mediterranean countries," Post-Print halshs-01655347, HAL.
    9. d'Agostino, Giorgio & Dunne, John Paul & Pieroni, Luca, 2013. "Military Expenditure, Endogeneity and Economic Growth," MPRA Paper 45640, University Library of Munich, Germany.
    10. Fernando Delbianco & Carlos Dabús & María angeles Caraballo pou, 2016. "Growth, Inequality and Corruption: Evidence from Developing Countries," Economics Bulletin, AccessEcon, vol. 36(3), pages 1811-1820.
    11. repec:eee:wdevel:v:103:y:2018:i:c:p:323-335 is not listed on IDEAS
    12. repec:eur:ejesjr:178 is not listed on IDEAS
    13. Trabelsi, Mohamed Ali & Trabelsi, Hédi, 2014. "At what level of corruption does economic growth decrease?," MPRA Paper 81279, University Library of Munich, Germany.
    14. repec:eee:wdevel:v:99:y:2017:i:c:p:60-74 is not listed on IDEAS
    15. repec:ebl:ecbull:eb-17-00318 is not listed on IDEAS

    More about this item

    Keywords

    corruption; government spending; development economics; panel data;

    JEL classification:

    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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