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Government spending, corruption and economic growth

Author

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  • G. d'Agostino
  • J.P Dunne

    (SALDRU, School of Economics, University of Cape Town)

  • L. Pieroni

Abstract

This paper considers the effects of corruption and government spending on economic growth. It starts from an endogenous growth model and extends it to account for the detrimental effects of corruption on the potentially productive components of government spending, namely military and investment spending. The resulting model is estimated on a sample of African countries and the results show, first, that the growth rate is strongly influenced by the interaction between corruption and military burden, with the interaction between corruption and government investment expenditure having a weaker effect. Second, allowing for the cyclical economic fluctuations in specific countries leaves the estimated elasticities close to those of the full sample. Third, there are significant conditioning variables that need to be taken into account, namely the form of government, political instability and natural resource endowment. These illustrate the cross country heterogeneity when accounting for quantitative direct and indirect effects of key variables on economic growth. Overall, these findings suggest important policy implications.

Suggested Citation

  • G. d'Agostino & J.P Dunne & L. Pieroni, 2012. "Government spending, corruption and economic growth," SALDRU Working Papers 74, Southern Africa Labour and Development Research Unit, University of Cape Town.
  • Handle: RePEc:ldr:wpaper:74
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    Citations

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    Cited by:

    1. Ryan A. Compton & Bryan Paterson, 2016. "Military Spending and Growth: The Role of Institutions," Defence and Peace Economics, Taylor & Francis Journals, pages 301-322.
    2. repec:eur:ejesjr:178 is not listed on IDEAS
    3. El Hamma Imad, 2017. "Do political institutions improve the effect of remittances on economic growth? Evidence from South-Mediterranean countries," Post-Print halshs-01655347, HAL.
    4. Trabelsi, Mohamed Ali & Trabelsi, Hédi, 2014. "At what level of corruption does economic growth decrease?," MPRA Paper 81279, University Library of Munich, Germany.
    5. d'Agostino, Giorgio & Dunne, John Paul & Pieroni, Luca, 2013. "Military Expenditure, Endogeneity and Economic Growth," MPRA Paper 45640, University Library of Munich, Germany.
    6. Eunji Kim & Yoonhee Ha & Sangheon Kim, 2017. "Public Debt, Corruption and Sustainable Economic Growth," Sustainability, MDPI, Open Access Journal, vol. 9(3), pages 1-30, March.
    7. Sorin-Daniel, MANOLE & Raluca, Erdniç, 2014. "Assessing The Impact Of Corruption Upon The Romanian Economy," Management Strategies Journal, Constantin Brancoveanu University, vol. 24(2), pages 4-11.
    8. Fernando Delbianco & Carlos Dabús & María angeles Caraballo pou, 2016. "Growth, Inequality and Corruption: Evidence from Developing Countries," Economics Bulletin, AccessEcon, pages 1811-1820.
    9. repec:eee:wdevel:v:99:y:2017:i:c:p:60-74 is not listed on IDEAS
    10. d'Agostino, Giorgio & Scarlato, Margherita, 2016. "Institutions, Innovation and Economic Growth in European Countries," MPRA Paper 72427, University Library of Munich, Germany.
    11. repec:ebl:ecbull:eb-17-00318 is not listed on IDEAS

    More about this item

    Keywords

    corruption; military spending; development economics; panel data; Africa;

    JEL classification:

    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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