The corruption–growth relationship: does the political regime matter?

Abstract

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 100 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 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 the commitment of ruling political elites to economic freedom, thereby providing confidence to the firms to invest, leading to long-term growth.

The manufacturing output effects of infrastructure development, liberalization and governance: evidence from Sub-Saharan Africa

“…The author admits that transport and energy infrastructure in Sub-Saharan Africa are deterred by the high level of corruption risks, which in turn discourages the mutually beneficial match of high return projects for private investors as well as closing Africa’s infrastructure gap, consequently affecting manufacturing sector that is overly dependent on infrastructure development. Our findings are in line with previous works by Egger and Winner ( 2007 ) and Saha and Sen ( 2020 ). In the present case, SSA infrastructure projects are more likely surviving on corruption and other distortions in governance, perhaps viewing it as a ‘blessing in disguise’ on account that it can help reduce the costs of inefficient border controls as well as overcome more deeply rooted shortcomings and inefficiencies, such as low bureaucratic quality (De Jong & Bogmans, 2011 ).…”

“…Therefore, industrialization and the manufacturing sector in particular, is likely to blossom amidst good governance. On the other hand, and as argued in Saha and Sen ( 2020 ), the possibility that poor institutional quality can be good for investments and growth, may not be farfetched. The authors focus on the East-Asian paradox, where some Asian countries, despite poor institutional quality scores, have registered tremendous improvements in growth.…”

The value of political connections: evidence from China's anti-corruption campaign

“…Impersonal market institutions have been developed in China only during the last few decades and have become poorly ingrained in society (Duan and Martins, 2019;Gong and Zhou, 2015;Mattingly, 2016). A key question when analyzing the ACC is whether there are alternative, non-market-based mechanismssuch as political connectionsby means of which goods are 3 See Feng et al (2015); Johansson et al (2017); ; Long and Yang (2016); Saha and Sen (2021); Wu et al (2012). 4 See, for example, Ang (2020), Oi (1989), Pei (2016), Sun (2004), andWedeman (2012).…”

The effect of corruption on microfinance loan portfolio: A semiparametric analysis

“…This evidence is largely supported by the sanding the wheel hypothesis (Fisman & Svensson, 2007; Kaufmann & Wei, 1999). However, emerging studies have begun to acknowledge that corruption is not wholly as bad as it might be portrayed, especially among the informal sector where bureaucratic systems are inefficient (Egger & Winner, 2005) and autocratic countries (Saha & Sen, 2021). That is, some form of corruption is required to lubricate certain processes, and this is consistent with the greasing the wheel hypothesis (Méon & Weill, 2010).…”