How Does Corruption in Central and Eastern Europe Hurt Economic Growth? Granger Test of Causality

Ekonomický časopis/Journal of Economics, Vol. 61, No. 6, pp. 563-577, 2013

16 Pages Posted: 10 Feb 2012 Last revised: 25 Jun 2014

Ladislava Grochová

Mendel University - Faculty of Economics and Business Administration

Tomáš Otáhal

Mendel University - Faculty of Economics and Business Administration

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Date Written: February 10, 2012

Abstract

The paper explains theoretical framework of how corruption hurts economic growth and reveals its application difficulties. Comparing views on corruption in terms of the problem of agency and the problem of rent-seeking we argue that corruption in general is the problem of legal setting and its enforcement and, if badly established, it does not promote economic growth. To verify the theoretical argument we present empirical Granger causality test to demonstrate that corruption precedes economic growth in Central and Eastern Europe. This means that legal setting and its enforcement rather allow for rent-seeking than promote economic growth. As a consequence we emphasize the necessity to focus on institutional framework to fight corruption and support economic growth.

Keywords: Agency theory, corruption, economic growth, rent seeking, Granger causality

JEL Classification: D72, D73, O17

Suggested Citation

Grochová, Ladislava and Otáhal, Tomáš, How Does Corruption in Central and Eastern Europe Hurt Economic Growth? Granger Test of Causality (February 10, 2012). Ekonomický časopis/Journal of Economics, Vol. 61, No. 6, pp. 563-577, 2013. Available at SSRN: https://ssrn.com/abstract=2002736

Ladislava Grochová

Mendel University - Faculty of Economics and Business Administration ( email )

Zemědělská 1a
Brno, 613 00
Czech Republic
+420 545 132 701 (Phone)
+420 545 132 797 (Fax)

HOME PAGE: http://www.pef.mendelu.cz/en/?lang=en

Tomáš Otáhal (Contact Author)

Mendel University - Faculty of Economics and Business Administration ( email )

Staňkova 578/16b
Brno, 602 00
Czech Republic

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