Corruption's Effect on Growth and its Transmission Channels

28 Pages Posted: 26 Sep 2004

See all articles by Lorenzo Pellegrini

Lorenzo Pellegrini

Erasmus University Rotterdam (EUR) - Institute of Social Studies (ISS)

Reyer Gerlagh

Tilburg University - Center and Faculty of Economics and Business Administration

Abstract

A common finding of recent theoretical and empirical literature is that corruption has a negative effect on economic growth. In the paper, through growth regression analysis, we estimate the direct and indirect effects of corruption on economic growth. The indirect transmission channels, specifically investments, trade policy, schooling, and political stability, analysed in our study prove to be significant in explaining the deleterious effect of corruption on growth rates. We find that one standard deviation increase in the corruption index is associated with a decrease in investments of 2.46 percentage points, which in turn decreases economic growth by 0.34 percent per year. The second, by importance, transmission channel is openness: a standard deviation increase in the corruption index is associated with a decrease of the openness index by 0.19, resulting in a decrease in economic growth by 0.30 percent per year. Jointly, the transmission channels explain 81 percent of the effect of corruption on growth. While combating corruption is a long-term task, an understanding of the transmission channels, through which corruption affects the economy, may suggest ways to limit corruption's negative, but indirect, effects on growth.

Suggested Citation

Pellegrini, Lorenzo and Gerlagh, Reyer, Corruption's Effect on Growth and its Transmission Channels. Kyklos, Vol. 57, No. 3, pp. 429-456, August 2004. Available at SSRN: https://ssrn.com/abstract=591558

Lorenzo Pellegrini (Contact Author)

Erasmus University Rotterdam (EUR) - Institute of Social Studies (ISS) ( email )

PO Box 29776
2502 LT The Hague, 2518 AX
Netherlands

Reyer Gerlagh

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Register to save articles to
your library

Register

Paper statistics

Downloads
28
Abstract Views
2,983
PlumX Metrics