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Corruption and the Institutional Environment for Growth

Author

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  • Heckelman, Jac C.

    () (Wake Forest University)

  • Powell, Benjamin

    () (Suffolk University, Department of Economics)

Abstract

Several cross-country studies have found that corruption is detrimental to economic growth, but the findings are not universally robust. We utilize the economic freedom index to examine if corruption can facilitate growth by allowing entrepreneurs to avoid inefficient policies and regulations when economic freedom is limited. Using regression analysis, we find that corruption is growth enhancing when economic freedom is most limited but the beneficial impact of corruption decreases as economic freedom increases. Not all areas of economic freedom affect the corruption-growth relationship equally. In particular, we find that when we analyze individual areas of economic freedom the beneficial effect of corruption disappears most quickly when the size of government and the extent of regulation decrease.

Suggested Citation

  • Heckelman, Jac C. & Powell, Benjamin, 2008. "Corruption and the Institutional Environment for Growth," Working Papers 2008-6, Suffolk University, Department of Economics.
  • Handle: RePEc:suf:wpaper:2008-6
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    File URL: http://192.138.214.118/RePEc/docs/wpaper/2008-6.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The cost of corruption
      by Economic Logician in Economic Logic on 2008-12-09 21:02:00

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    Cited by:

    1. Dridi, Mohamed, 2013. "Corruption and Economic Growth: The Transmission Channels," MPRA Paper 47873, University Library of Munich, Germany.
    2. Bologna, Jamie, 2016. "The effect of informal employment and corruption on income levels in Brazil," Journal of Comparative Economics, Elsevier, vol. 44(3), pages 657-695.
    3. Jamie Bologna & Amanda Ross, 2015. "Corruption and entrepreneurship: evidence from Brazilian municipalities," Public Choice, Springer, vol. 165(1), pages 59-77, October.
    4. Jamie Bologna & Amanda Ross, 2015. "Corruption and Entrepreneurship: Evidence from a Random Audit Program," Working Papers 15-05, Department of Economics, West Virginia University.
    5. repec:pid:journl:v:55:y:2016:i:4:p:689-702 is not listed on IDEAS
    6. Ugur, Mehmet & Dasgupta, Nandini, 2011. "Corruption and economic growth: A meta-analysis of the evidence on low-income countries and beyond," MPRA Paper 31226, University Library of Munich, Germany, revised 31 May 2011.
    7. repec:bla:ecinqu:v:55:y:2017:i:1:p:137-159 is not listed on IDEAS
    8. Maria Cristina Molinari, 2011. "Corruption in Privatization and Governance Regimes," Working Papers 2011_28, Department of Economics, University of Venice "Ca' Foscari".
    9. Luminiţa Ionescu & George Lăzăroiu & Gheorghe Iosif, 2012. "Corruption and bureaucracy in public services," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 14(Special N), pages 665-679, November.
    10. Colin W. O'Reilly, 2015. "Firm Investment decisions in the post-conflict context," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 23(4), pages 717-751, October.
    11. Jac C. Heckelman & Bonnie Wilson, 2013. "Institutions, Lobbying, and Economic Performance," Economics and Politics, Wiley Blackwell, vol. 25(3), pages 360-386, November.
    12. Wouter Ebben & Albert de Vaal, 2009. "Institutions and the Relation between Corruption and Economic Growth," DEGIT Conference Papers c014_014, DEGIT, Dynamics, Economic Growth, and International Trade.
    13. Noel Johnson & William Ruger & Jason Sorens & Steven Yamarik, 2014. "Corruption, regulation, and growth: an empirical study of the United States," Economics of Governance, Springer, vol. 15(1), pages 51-69, February.
    14. Jamie Bologna, 2014. "The Effect of Informal Employment and Corruption on Income Levels in Brazil," Working Papers 14-26, Department of Economics, West Virginia University.
    15. Kotlánová Eva & Kotlán Igor, 2012. "Vliv institucionálního prostředí na velikost korupce: empirická analýza
      [The Influence of the Institutional Factors on the Corruption: The Empirical Analysis]
      ," Politická ekonomie, University of Economics, Prague, vol. 2012(2), pages 167-186.
    16. repec:eee:finlet:v:24:y:2018:i:c:p:179-185 is not listed on IDEAS
    17. Apergis, Nicholas & Dincer, Oguzhan C. & Payne, James E., 2012. "Live free or bribe: On the causal dynamics between economic freedom and corruption in U.S. states," European Journal of Political Economy, Elsevier, vol. 28(2), pages 215-226.
    18. M. Molinari, 2014. "A Second Best Theory of Institutional Quality," Public Organization Review, Springer, vol. 14(4), pages 545-559, December.
    19. E. Tsanana & X. Chapsa & C. Katrakilidis, 2016. "Is growth corrupted or bureaucratic? Panel evidence from the enlarged EU," Applied Economics, Taylor & Francis Journals, vol. 48(33), pages 3131-3147, July.

    More about this item

    Keywords

    Corruption; Economic Freedom; Growth;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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