When is Corruption a Substitute for Economic Freedom?

Abstract

Corruption supposedly reduces economic development by creating an uncertain contracting environment and by preventing the state from efficiently providing public goods and correcting externalities. However, corruption can be efficiency-enhancing in countries with relatively little economic freedom. Corruption in the military appears to reduce economic growth, while corruption in the educational environment appears to increase economic growth. On net, evidence suggests that corruption is growth-increasing when economic freedom is low.

Keywords: Corruption, Economic Freedom, Economic Growth

JEL Classification: D73, O10, O43