The Corruption-Growth Relationship: Does the Political Regime Matter?

Saha, Shrabani and Sen, Kunal (2021) The Corruption-Growth Relationship: Does the Political Regime Matter? Journal of Institutional Economics, 17 (2). pp. 243-266. ISSN 1744-1374

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Corruption is widely believed to have an adverse effect on the economic performance of a country. However, many East and Southeast Asian countries either achieved or currently are achieving impressively rapid economic growth despite widespread corruption- the so-called East-Asian-Paradox. A common feature of these countries was that they were autocracies. We re-examine the corruption-growth relationship, in light of the East-Asian-Paradox. We examine the role of political regimes, in mediating corruption-growth relationship using panel data over one hundred countries for the period 1984-2016. We find clear evidence that corruption-growth relationship differs by the type of political regime, and the growth enhancing effect of corruption is more likely in autocracies than in democracies. The marginal effect analysis shows that in strongly autocratic countries, higher corruption may actually lead to significantly higher growth, while this is not the case in democracies. Alternatively, democracy is not good for growth if there is a high level of perceived corruption. We provide suggestive evidence that the mechanism by which corruption is growth enhancing in autocracies is through the perceived credibility of commitment of ruling political elites to economic freedom, thereby providing confidence to the firms to invest, leading to long-term growth.

Keywords:Corruption, Political Regimes, Autocracy, Democracy, Economic Growth
Divisions:Lincoln International Business School
ID Code:41694
Deposited On:31 Jul 2020 13:11

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