Why Does Public Investment Fail to Raise Economic Growth? The Role of Corruption

29 Pages Posted: 28 Sep 2015

See all articles by M. Emranul Haque

M. Emranul Haque

University of Manchester - School of Social Sciences

Richard Kneller

University of Nottingham

Date Written: December 2015

Abstract

In an endogenous growth model with information asymmetry between the government and the bureaucracy, the bureaucrats can falsely report of high‐quality high‐cost procurement, while providing low‐quality low‐cost product. This reduces the quality of public services, but inflates the public spending, which in effect reduces growth. We test our results by using three‐stage least squares method in a panel set up for a system of four equations on growth, public investment, corruption and private investment. Our primary results are twofold. First, corruption increases public investment. Second, corruption reduces the returns to public investment and makes it ineffective in raising economic growth.

Suggested Citation

Haque, M. Emranul and Kneller, Richard, Why Does Public Investment Fail to Raise Economic Growth? The Role of Corruption (December 2015). The Manchester School, Vol. 83, Issue 6, pp. 623-651, 2015. Available at SSRN: https://ssrn.com/abstract=2665842 or http://dx.doi.org/10.1111/manc.12068

M. Emranul Haque (Contact Author)

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom
+0161 275 4829 (Phone)

HOME PAGE: http://www.socialsciences.manchester.ac.uk/disciplines/economics/about/staff/

Richard Kneller

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

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