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Unproductive Education in a Model of Corruption and Growth

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  • M. Emranul Haque

Abstract

This paper presents a dynamic general equilibrium analysis of education, public sector corruption and economic growth. In an economy with government intervention along with physical and human capital accumulation, state-appointed bureaucrats are responsible for procuring public goods, which contribute to productive efficiency. Corruption arises because of an opportunity for bureaucrats to embezzle public funds. Education has two opposing effects, a positive productivity enhancing effect and a negative corruption efficiency of bureaucrats. If the latter dominates the former, the incentive for bureaucrats to acquire education rises. The net effect may result in an insignificant (or even negative) effect of human capital on growth. Our results are straightforward. First, corruption and development are determined jointly in a relationship that is two-way causal: bureaucratic malfeasance both influences and is influenced by economic activity and human capital accumulation. Second, this two-way causality gives rise to threshold effects and multiple development regimes with very different equilibrium properties: in low stages of development there is a unique equilibrium with high corruption where higher human capital cannot get the economy out of poverty trap, in high stages of development there is a unique equilibrium with low corruption where human capital can exert its influence, and in intermediate stages of development there are both types of equilibrium. Third, transition between regimes may or may not be feasible and it is possible for a development trap to occur.

Suggested Citation

  • M. Emranul Haque, 2012. "Unproductive Education in a Model of Corruption and Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 178, Economics, The Univeristy of Manchester.
  • Handle: RePEc:man:cgbcrp:178
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    File URL: http://hummedia.manchester.ac.uk/schools/soss/cgbcr/discussionpapers/dpcgbcr178.pdf
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    1. Blackburn, Keith & Forgues-Puccio, Gonzalo F., 2006. "Financial Liberalisation, Bureaucratic Corruption and Economic," Proceedings of the German Development Economics Conference, Berlin 2006 8, Verein für Socialpolitik, Research Committee Development Economics.
    2. Andrea Bassanini & Stefano Scarpetta, 2001. "Does Human Capital Matter for Growth in OECD Countries?: Evidence from Pooled Mean-Group Estimates," OECD Economics Department Working Papers 282, OECD Publishing.
    3. Bassanini, Andrea & Scarpetta, Stefano, 2002. "Does human capital matter for growth in OECD countries? A pooled mean-group approach," Economics Letters, Elsevier, vol. 74(3), pages 399-405, February.
    4. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
    5. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
    6. Theo Eicher & Cecilia García-Peñalosa & Tanguy Ypersele, 2009. "Education, corruption, and the distribution of income," Journal of Economic Growth, Springer, vol. 14(3), pages 205-231, September.
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