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Does Size Matter? Scale, Corruption and Uncertainty

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  • Gonzalo F. Forgues-Puccio
  • Ibrahim M. Okumu

Abstract

We study the role of the size of the economy in mitigating the impact of public sector corruption on economic development. The analysis is based on a dynamic general equilibrium model in which growth occurs endogenously through the invention and manufacture of new intermediate goods that are used in the production of output. Potential innovators decide to enter the market considering the fraction of future profits that may be lost to corruption. We find that depending on the predictability of bribes, the size of the economy may be an important factor in determining the effects of corruption on innovation and economic growth.

Suggested Citation

  • Gonzalo F. Forgues-Puccio & Ibrahim M. Okumu, 2012. "Does Size Matter? Scale, Corruption and Uncertainty," CDMA Working Paper Series 201207, Centre for Dynamic Macroeconomic Analysis.
  • Handle: RePEc:san:cdmawp:1207
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    References listed on IDEAS

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    More about this item

    Keywords

    Corruption; population size; innovation; growth; uncertainty;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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