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Does Corruption Affect Economic Growth?

  • Eatzaz Ahmad
  • Muhammad Aman Ullah
  • Muhammad Irfanullah Arfeen
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    Using panel data from the International Country Risk Guide corruption index, institutional quality and political stability indices and several state variables for developed and developing countries, this paper explores the linear quadratic empirical relationship between corruption and economic growth. Empirical literature has shown a linear relationship between corruption and economic growth but hasn’t dif ferentiated between growthenhancing and growth-reducing levels of corruption. An analysis based on the generalized method of moments estimation shows that a decrease in corruption raises the economic growth rate in an inverted U-shaped way. This result is robust with respect to alternative specifications of the econometric relationship.

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    File URL: http://www.economia.puc.cl/docs/107764_laje_492277.pdf
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    Article provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its journal Latin American Journal of Economics-formerly Cuadernos de Economía.

    Volume (Year): 49 (2012)
    Issue (Month): 2 (November)
    Pages: 277-305

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    Handle: RePEc:ioe:cuadec:v:49:y:2012:i:2:p:277-305
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    1. Kaufmann, Daniel & Wei, Shang-Jin, 1999. "Does 'Grease Money' Speed Up the Wheels of Commerce?," MPRA Paper 8209, University Library of Munich, Germany.
    2. Roubini, Nouriel & Swagel, Phillip & Ozler, Sule & Alesina, Alberto, 1996. "Political Instability and Economic Growth," Scholarly Articles 4553024, Harvard University Department of Economics.
    3. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
    4. Alesina, Alberto, et al, 1996. " Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
    5. Raul A. Barreto, 2001. "Endogenous Corruption, Inequality and Growth: Econometric Evidence," School of Economics Working Papers 2001-02, University of Adelaide, School of Economics.
    6. Lui, Francis T, 1985. "An Equilibrium Queuing Model of Bribery," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 760-81, August.
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