Growth and Corruption: A Complex Relationship

This paper investigates the growth-corruption relationship in a sample of 146 countries for the period 1984-2009 using panel generalized method of moments. While negative effects of corruption on growth have drawn economists’ interest in recent years, our main contribution is to examine the effects by employing the hierarchical polynomial regression to evaluate the relationship after controlling economic and institutional factors. The result challenges some of the findings that negative growth-corruption association in the literature, but also provide new inferences. The findings reflect that corruption is not always growth-inhibitory, for some countries it is growth-enhancing which supports the “grease the wheels” hypothesis. However, our results suggest that a cubic function best fitted the data.