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Public Investment and Growth: The Role of Corruption

  • M. Emranul Haque
  • Richard Kneller

In this paper, we examine the growth effects of public investment in the presence of corruption. Our methodology improves on previous research on this topic by explicitly recognizing the role of simultaneity between public investment, corruption and growth and the possible biases arising from omission of correlated variables from the single reduced form equation based analysis. We use three-stage least squares method in a panel set up for a system of four equations on growth, public investment, corruption and private investment. Our primary results are twofold. First, corruption increases public investment. Second, corruption reduces the returns to public investment and makes it ineffective in raising economic growth.

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File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/cgbcr/discussionpapers/dpcgbcr98.pdf
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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 98.

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Length: 22 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:man:cgbcrp:98
Contact details of provider: Postal: Manchester M13 9PL
Phone: (0)161 275 4868
Fax: (0)161 275 4812
Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/our-research/centre-for-growth-and-business-cycle-research/

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  13. Gupta, Sanjeev & Clements, Benedict & Baldacci, Emanuele & Mulas-Granados, Carlos, 2005. "Fiscal policy, expenditure composition, and growth in low-income countries," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 441-463, April.
  14. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
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  16. Fisman, Raymond & Gatti, Roberta, 2000. "Decentralization and corruption - evidence across countries," Policy Research Working Paper Series 2290, The World Bank.
  17. Vito Tanzi & Hamid Reza Davoodi, 1997. "Corruption, Public Investment, and Growth," IMF Working Papers 97/139, International Monetary Fund.
  18. Sachs, J-D & Warner, A-M, 1996. "Sources of Slow Growth in African Economies," Papers 545, Harvard - Institute for International Development.
  19. Coe, David T & Helpman, Elhanan & Hoffmaister, Alexander, 1995. "North-South R&D Spillovers," CEPR Discussion Papers 1133, C.E.P.R. Discussion Papers.
  20. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
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