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Unproductive Education in a Model of Corruption and Growth


  • M. Emranul Haque
  • Babar Hussain


This paper provides an explanation for recent empirical evidence on the heterogeneous effects of human capital on economic growth in developing countries. In a two-period overlapping generations economy with physical and capital accumulation, state-appointed bureaucrats are responsible for procuring productive public goods. Corruption arises because of an opportunity for bureaucrats to misappropriate public funds. The decision of the corruptible bureaucrat affects public finances and hence the capital accumulation in the economy. Alongside the positive productivity enhancing effect, human capital is assumed to increase the efficiency of corrupt bureaucrats in embezzlement. 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 main results are as follows: (1) corruption is always bad for economic development, but its effect is worse in the economy with (more) human capital; (2) the incidence of corruption may, itself, be affected by both the development and human capital level of the economy; (3) education is good for development when accompanied by good governance, but may be bad for development when governance is bad; and (4) corruption and poverty may co-exist as permanent, rather than just transitory, fixtures of an economy.

Suggested Citation

  • M. Emranul Haque & Babar Hussain, 2013. "Unproductive Education in a Model of Corruption and Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 179, Economics, The Univeristy of Manchester.
  • Handle: RePEc:man:cgbcrp:179

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    References listed on IDEAS

    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. Miller, Stephen M. & Upadhyay, Mukti P., 2000. "The effects of openness, trade orientation, and human capital on total factor productivity," Journal of Development Economics, Elsevier, vol. 63(2), pages 399-423, December.
    5. 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.
    6. 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.
    7. Temple, Jonathan, 1999. "A positive effect of human capital on growth," Economics Letters, Elsevier, vol. 65(1), pages 131-134, October.
    8. 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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