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Government spending, corruption and economic growth

  • G. d'Agostino
  • J.P Dunne

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

  • L. Pieroni

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.

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Paper provided by Southern Africa Labour and Development Research Unit, University of Cape Town in its series SALDRU Working Papers with number 74.

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Date of creation: 2012
Date of revision:
Handle: RePEc:ldr:wpaper:74
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  1. Clara Delavallade, 2006. "Corruption and distribution of public spending in developing countries," Journal of Economics and Finance, Springer, vol. 30(2), pages 222-239, June.
  2. de la Croix, David & Doepke, Matthias, 2006. "To Segregate or to Integrate: Education Politics and Democracy," CEPR Discussion Papers 5799, C.E.P.R. Discussion Papers.
  3. Jong-A-Pin, R., 2006. "On the measurement of political instability and its impact on economic growth," Research Report 06C05, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  4. Clara Delavallade, 2007. "Why do North African firms involve in corruption ?," Documents de travail du Centre d'Economie de la Sorbonne v07002, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
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  8. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
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  11. David de la Croix & Clara Delavallade, 2007. "Corruption et allocation optimale de l'investissement public," Revue économique, Presses de Sciences-Po, vol. 58(3), pages 637-647.
  12. Raddatz, Claudio, 2005. "Are external shocks responsible for the instability of output in low income countries?," Policy Research Working Paper Series 3680, The World Bank.
  13. Timothy Besley & Masayuki Kudamatsu, 2007. "Making Autocracy Work," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 48, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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  17. van der Ploeg, Frederick, 2006. "Challenges and Opportunities for Resource Rich Economies," CEPR Discussion Papers 5688, C.E.P.R. Discussion Papers.
  18. Christa N. Brunnschweiler & Erwin H. Bulte, 2009. "Natural resources and violent conflict: resource abundance, dependence, and the onset of civil wars," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 651-674, October.
  19. S. Brock Blomberg, 1992. "Growth, political instability, and the defense burden," International Finance Discussion Papers 436, Board of Governors of the Federal Reserve System (U.S.).
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  21. Shantayanan Devarajan & Vinaya Swaroop & Heng-fu Zou, 1996. "The composition of public expenditure and economic growth," CEMA Working Papers 77, China Economics and Management Academy, Central University of Finance and Economics.
  22. Michael Alexeev & Robert Conrad, 2009. "Assessment of Tax Reform Results in Russia: Comparative Analysis," Working Papers 0001, Gaidar Institute for Economic Policy, revised 2009.
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  25. Ndulu,Benno J. & O'Connell,Stephen A. & Bates,Robert H. & Collier,Paul & Soludo,Chukwuma C., 2009. "The Political Economy of Economic Growth in Africa, 1960–2000," Cambridge Books, Cambridge University Press, number 9780521127752.
  26. Giorgio d’Agostino & John Paul Dunne & Luca Pieroni, 2012. "Corruption, Military Spending And Growth," Defence and Peace Economics, Taylor & Francis Journals, vol. 23(6), pages 591-604, December.
  27. Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 5-27, July.
  28. Giorgio d'Agostino & Luca Pieroni & J Paul Dunne, 2011. "Corruption, Military Spending and Growth," Working Papers 1103, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
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