Institutions and the Relation between Corruption and Economic Growth
We study the effects of corruption on economic growth in a framework that includes corruption as part of the institutional setting of countries. Using a formal growth framework where corruption affects labor inputs and the provision of public goods, we find that particularly in situations where institutions are not well developed corruption may be conducive to growth. In these instances the positive effect of corruption on the working of the institutional system outweighs the negative direct effects of corruption on growth. We also find that the interaction among institutions themselves matters. This underscores the importance of taking into account the complete institutional setting when studying corruption, both in theory as well as in empirics.
|Length:||34 pages JEL Classification:|
|Date of creation:||Jun 2009|
|Date of revision:|
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