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Institutions and the Relation between Corruption and Economic Growth

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  • Wouter Ebben
  • Albert de Vaal

Abstract

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.

Suggested Citation

  • Wouter Ebben & Albert de Vaal, 2009. "Institutions and the Relation between Corruption and Economic Growth," DEGIT Conference Papers c014_014, DEGIT, Dynamics, Economic Growth, and International Trade.
  • Handle: RePEc:deg:conpap:c014_014
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    File URL: http://degit.sam.sdu.dk/papers/degit_14/c014_014.pdf
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    References listed on IDEAS

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    1. Aidt, Toke & Dutta, Jayasri & Sena, Vania, 2008. "Governance regimes, corruption and growth: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 36(2), pages 195-220, June.
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    6. Johannes Fedderke, 2001. "Growth and institutions," Journal of International Development, John Wiley & Sons, Ltd., vol. 13(6), pages 645-670.
    7. Gradstein, Mark, 2002. "Governance and Growth," CEPR Discussion Papers 3270, C.E.P.R. Discussion Papers.
    8. Isaac Ehrlich & Francis T. Lui, 1999. "Bureaucratic Corruption and Endogenous Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages 270-293, December.
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    10. repec:cup:apsrev:v:87:y:1993:i:03:p:567-576_10 is not listed on IDEAS
    11. Gradstein, Mark, 2004. "Governance and growth," Journal of Development Economics, Elsevier, vol. 73(2), pages 505-518, April.
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