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Short-run and Long-run Effects of Corruption on Economic Growth: Evidence from State-Level Cross-Section Data for the United States

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  • Nobuo Akai

    (School of Business Administration, University of Hyogo)

  • Yusaku Horiuchi

    (Asia Pacific School of Economics and Government, Australian National University)

  • Masayo Sakata

    (Faculty of Politics, Economics and Law, Osaka International University)

Abstract

Theoretical studies suggest that corruption may counteract government failure and promote economic growth in the short run, given exogenously determined suboptimal bureaucratic rules and regulations. As the government failure is itself a function of corruption, however, corruption should have detrimental effects on economic growth in the long run. In this paper, we measure the rate of economic growth for various time spans - short (1998?2000), middle (1995-2000) and long (1991-2000) - using previously uninvestigated state-level cross-section data for the United States. Our two-stage least square (2SLS) estimates with a carefully selected set of instruments show that the effect of corruption on economic growth is indeed negative and statistically significant in the middle and long spans but insignificant in the short span.

Suggested Citation

  • Nobuo Akai & Yusaku Horiuchi & Masayo Sakata, 2005. "Short-run and Long-run Effects of Corruption on Economic Growth: Evidence from State-Level Cross-Section Data for the United States," CIRJE F-Series CIRJE-F-348, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2005cf348
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    3. Dridi, Mohamed, 2013. "Corruption and Economic Growth: The Transmission Channels," MPRA Paper 47873, University Library of Munich, Germany.
    4. Ahmet Faruk Aysan & …mer Faruk Baykal & Marie-Ange Véganzonès–Varoudakis, 2011. "The Effects of Convergence in Governance on Capital Accumulation in the Black Sea Economic Cooperation Countries," Chapters, in: Mehmet Ugur & David Sunderland (ed.), Does Economic Governance Matter?, chapter 6, Edward Elgar Publishing.
    5. Biru Paksha Paul, 2010. "Does corruption foster growth in Bangladesh?," International Journal of Development Issues, Emerald Group Publishing, vol. 9(3), pages 246-262, September.
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    7. Maria Amin & Adeel Ahmed & Khalid Zaman, 2013. "The Relationship Between Corruption And Economic Growth In Pakistan — Looking Beyound The Incumbent," Oeconomics of Knowledge, Saphira Publishing House, vol. 5(3), pages 15-45, July.
    8. Dalila Chenaf-Nicet, 2020. "Dynamics of Structural Change in a Globalized World: What Is the Role Played by Institutions in the Case of Sub-Saharan African Countries?," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 32(4), pages 998-1037, September.
    9. Salah Alnahdi, 2020. "The Impact of Corruption on Healthcare Services: Empirical Evidence from the MENA Region," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 8-15.
    10. Réda Marakbi & Patrick Villieu, 2020. "Corruption, tax evasion, and seigniorage in a monetary endogenous growth model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(6), pages 2019-2050, December.
    11. Weiss, Eli & Rosenblatt, David, 2010. "Regional economic growth in Mexico : recent evolution and the role of governance," Policy Research Working Paper Series 5369, The World Bank.
    12. Egunjobi T. Adenike, 2013. "An econometric analysis of the impact of Corruption on economic growth in Nigeria," E3 Journal of Business Management and Economics., E3 Journals, vol. 4(3), pages 054-065.
    13. Aliyu, Shehu Usman Rano & Elijah, Akanni Oludele, 2008. "Corruption and Economic Growth in Nigeria: 1986 -2007," MPRA Paper 12504, University Library of Munich, Germany, revised 07 Dec 2008.
    14. Zeeshan, Muhammad & han, Jiabin & Rehman, Alam & Ullah, Irfan & Hussain, Arif & Alam Afridi, Fakhr E., 2022. "Exploring symmetric and asymmetric nexus between corruption, political instability, natural resources and economic growth in the context of Pakistan," Resources Policy, Elsevier, vol. 78(C).
    15. Pushkarev, Oleg, 2007. "Corruption and Economic Development of Russia: A Regional Aspect," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 6(2), pages 81-94.
    16. Ambar, Rabnawaz, 2015. "Corruption, Inequality and Economic Growth," MPRA Paper 70375, University Library of Munich, Germany, revised 2015.
    17. Andreas Assiotis & Kevin Sylwester, 2013. "Do the effects of corruption upon growth differ between democracies and autocracies?," University of Cyprus Working Papers in Economics 06-2013, University of Cyprus Department of Economics.
    18. Klodian Muco & Greta Balliu, 2018. "Crescita economica e corruzione: quale impatto nei paesi balcanici? (Growth and corruption: What impact in the Balkan countries?)," Moneta e Credito, Economia civile, vol. 71(284), pages 297-309.
    19. Hakimi, Abdelaziz & Hamdi, Helmi, 2015. "How Corruption affect Growth in MENA region? Fresh Evidence from a Panel Cointegration Analysis," MPRA Paper 63750, University Library of Munich, Germany.
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    21. Kodila Tedika, Oasis, 2012. "Consequences De La Corruption : Panorama Empirique [Consequences of Corruption : Empirical survey]," MPRA Paper 41482, University Library of Munich, Germany.

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    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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