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Estimating the effects of corruption - implications for Bangladesh

  • Rahman, Aminur
  • Kisunko, Gregory
  • Kapoor, Kapil
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    Building on the pioneering work of Barro (1991) and Mauro (1995) to include the most recent years for which data are available (for Bangladesh in the 1990s), the authors investigate the relationships between corruption, and growth, and, between corruption and investment, both domestic and foreign, to see whether they have changed from earlier decades. Then they move away from Mauro's implicit assumption that the corruption index value for a relatively short period of time, can be used as a proxy for the long run, and further augment Mauro's model by including significant regional dummy variables, in an attempt to take account of various region-specific effects. The authors also analyze the sensitivity of corruption in the presence, and absence of various policy, geographic, and demographic variables that are widely used in empirical growth, and investment literature. The findings suggest that countries serious about improving governance, and reducing corruption, should redefine the role of government, overhaul the system of incentives, and strengthen domestic institutions, to make sure the necessary checks, and balances are in place. Such an approach to reform would help attract more investment - both domestic and foreign - and would accelerate economic growth, and poverty reduction.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2479.

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    Date of creation: 30 Nov 2000
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    Handle: RePEc:wbk:wbrwps:2479
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    1. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
    2. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
    3. Brunetti, Aymo & Kisunko, Gregory & Weder, Beatrice, 1998. "Credibility of Rules and Economic Growth: Evidence from a Worldwide Survey of the Private Sector," World Bank Economic Review, World Bank Group, vol. 12(3), pages 353-84, September.
    4. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    5. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Governance matters," Policy Research Working Paper Series 2196, The World Bank.
    6. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
    7. Shang-Jin Wei, 1997. "Why is Corruption So Much More Taxing Than Tax? Arbitrariness Kills," NBER Working Papers 6255, National Bureau of Economic Research, Inc.
    8. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
    9. Lien, Da-Hsiang Donald, 1986. "A note on competitive bribery games," Economics Letters, Elsevier, vol. 22(4), pages 337-341.
    10. Sanjeev Gupta, 1998. "Does Corruption Affect Income Inequality and Poverty?," IMF Working Papers 98/76, International Monetary Fund.
    11. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-92, May.
    12. Vito Tanzi & Hamid Reza Davoodi, 1997. "Corruption, Public Investment, and Growth," IMF Working Papers 97/139, International Monetary Fund.
    13. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
    14. Beck, Paul J. & Maher, Michael W., 1986. "A comparison of bribery and bidding in thin markets," Economics Letters, Elsevier, vol. 20(1), pages 1-5.
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