Corruption and Growth: Exploring the Investment Channel
This study investigates the impact of corruption on public and private investment in African countries as a way of exploring one channel through which corruption undermines growth. The empirical results indicate that corruption affects economic growth directly and through its impact on investment. We find that corruption has a negative and significant effect on domestic investment and that corruption affects public and private investment differently. The results indicate that corruption has a positive effect on public investment while it has a negative effect on private investment. The positive association between public investment and corruption supports the view that corrupt bureaucrats seek to increase capital expenditure (over maintenance expenditures) to maximize private gains (rent-seeking). In contrast, the results confirm that corruption discourages private investment, suggesting that corruption increases the costs of doing business while raising uncertainty over expected returns to capital. The results support the view that corruption hampers growth and call for institutional reforms to improve the quality of governance as a prerequisite for achieving investment-led growth. JEL Categories:
|Date of creation:||May 2008|
|Contact details of provider:|| Postal: Thompson Hall, Amherst, MA 01003|
Web page: http://www.umass.edu/economics
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- Léonce Ndikumana, 2006. "Corruption and Pro-Poor Growth Outcomes: Evidence and Lessons for African Countries," Working Papers wp120, Political Economy Research Institute, University of Massachusetts at Amherst.
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- Léonce Ndikumana & Adam Elhiraika, 2007. "Reserves Accumulation in African Countries: Sources, Motivations, and Effects," UMASS Amherst Economics Working Papers 2007-12, University of Massachusetts Amherst, Department of Economics.
- Baliamoune-Lutz, Mina & Ndikumana, Léonce, 2007.
"The Growth Effects of Openness to Trade and the Role of Institutions: New Evidence from African Countries,"
6189, University Library of Munich, Germany.
- Léonce Ndikumana & Mina Baliamoune-Lutz, 2007. "The Growth Effects of Openness to Trade and the Role of Institutions: New Evidence from African Countries," UMASS Amherst Economics Working Papers 2007-05, University of Massachusetts Amherst, Department of Economics.
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- Ritva Reinikka & Jakob Svensson, 2005. "Fighting Corruption to Improve Schooling: Evidence from a Newspaper Campaign in Uganda," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 259-267, 04/05.
- Mauro, Paolo, 1998. "Corruption and the composition of government expenditure," Journal of Public Economics, Elsevier, vol. 69(2), pages 263-279, June.
- Thierry Verdier & Daron Acemoglu, 2000. "The Choice between Market Failures and Corruption," American Economic Review, American Economic Association, vol. 90(1), pages 194-211, March.
- Acemoglu, D. & Verdier, T., 1997. "The Choice between Market Failures and Corruption," DELTA Working Papers 97-06, DELTA (Ecole normale supérieure).
- Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, "undated". "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Bleaney, Michael & Greenaway, David, 2001. "The impact of terms of trade and real exchange rate volatility on investment and growth in sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 65(2), pages 491-500, August.
- Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712. Full references (including those not matched with items on IDEAS)
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