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Government spending, corruption and economic growth

  • d'Agostino, Giorgio
  • Dunne, Paul J.
  • Pieroni, Luca

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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File URL: https://mpra.ub.uni-muenchen.de/38109/1/MPRA_paper_38109.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38109.

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Date of creation: 15 Apr 2012
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Handle: RePEc:pra:mprapa:38109
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