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Corruption and economic growth: does the size of the government matter?

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  • António Afonso

    (Universidade de Lisboa
    UECE – Research Unit on Complexity and Economics is supported by Fundação para a Ciência e a Tecnologia (grant number UIDB/05069/2020))

  • Eduardo Sá Fortes Leitão Rodrigues

    (Universidade Federal Rural Do Rio de Janeiro)

Abstract

Corruption is often a source of contentious debate, covering different areas of knowledge, such as philosophy and sociology. In this paper we assess the effects of corruption on economic activity and highlight the relevance of the size of the government. We use dynamic models and the generalised method of moments approach for a panel of 48 countries, and as a measure of corruption the Transparency International's Corruption Perceptions Index, from 2012 to 2019. We find a significant adverse effect of corruption on the level and growth of GDP per capita, but that large governments benefit less from reducing corruption. Furthermore, developing economies, regardless of government size, benefit less from reducing corruption, while government size is not sufficient to explain the influence of corruption on economic activity, although the level of effectiveness of public services is crucial. Finally, our findings suggest that private investment is a potential transmission channel for corruption.

Suggested Citation

  • António Afonso & Eduardo Sá Fortes Leitão Rodrigues, 2022. "Corruption and economic growth: does the size of the government matter?," Economic Change and Restructuring, Springer, vol. 55(2), pages 543-576, May.
    • Handle: RePEc:kap:ecopln:v:55:y:2022:i:2:d:10.1007_s10644-021-09338-4
    DOI: 10.1007/s10644-021-09338-4
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    Cited by:

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    2. Camelia Negri, 2023. "Causes and Determinants of Perceived Corruption in the EU countries: a Panel Data Approach," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 75-86.
    3. Eduardo de Sá Fortes Leitão Rodrigues, 2021. "Citizens' Confidence in Government and Inefficient Public Spending. Is there a Trust Trap?," Working Papers REM 2021/0199, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    4. Oanh Thi Kim Tran & Trang Thi Thanh Chu, 2024. "Threshold impact of shadow economy on sustainable development in high and low-financial development countries," HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE - ECONOMICS AND BUSINESS ADMINISTRATION, HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE, HO CHI MINH CITY OPEN UNIVERSITY, vol. 14(3), pages 109-128.
    5. Muhammad Hafizuddin Yusof & Muhammad Abu Hanifah Mohd Haniff & Zulaikha Kamaruddin & Nurul Aifa Mohd Jaafar & Shamsul Baharin Saihani, 2023. "Investigating the Causality between Corruption and Economic Growth: A Systematic Review," Information Management and Business Review, AMH International, vol. 15(4), pages 492-501.

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    More about this item

    Keywords

    Corruption; Economic growth; Government size; Generalised method of moments; Forward orthogonal deviations;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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