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Impact of inter-country corruption differences on wages and economic growth

Author

Listed:
  • Óscar Afonso

    (University of Porto)

  • Mafalda Pinho

    (University of Porto)

Abstract

Theoretically and numerically, this paper attempts to examine the macroeconomic effects of corruption by using the two-country directed technical change model. At a single-country level, an increase in corruption levels in one country leads to an intra-country decrease in the demand for labor and wages and a permanent slowdown of technological-knowledge progress and economic growth. At the inter-country level, a country-specific increase in corruption enlarges inter-country wage and technological-knowledge gaps. Overall, higher corruption levels in one country are detrimental to global economic growth. Through calibration, it is shown that when the differences between the corruption of non-corrupt and corrupt countries increase: (1) economic growth is mainly stimulated in the corrupt countries India, Mexico, and Brazil; (2) the lowest wage inequality compared to non-corrupt countries is observed in the corrupt countries Greece, Portugal, and Spain.

Suggested Citation

  • Óscar Afonso & Mafalda Pinho, 2024. "Impact of inter-country corruption differences on wages and economic growth," Economic Change and Restructuring, Springer, vol. 57(2), pages 1-46, April.
    • Handle: RePEc:kap:ecopln:v:57:y:2024:i:2:d:10.1007_s10644-024-09662-5
    DOI: 10.1007/s10644-024-09662-5
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    More about this item

    Keywords

    Corruption; Wages; Economic growth;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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