Munich Personal RePEc Archive

At what level of corruption does economic growth decrease?

Trabelsi, Mohamed Ali and Trabelsi, Hédi (2014): At what level of corruption does economic growth decrease?

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Abstract

With reference to the grease-the-wheels hypothesis, the impact of corruption on growth seems ambiguous. Therefore, the questions to be addressed are to what extent corruption can be tolerated and at what threshold it has a detrimental effect on an economy. In this article, we examine the impact of corruption on economic growth by testing the hypothesis that the relationship between these two variables is nonlinear and by assessing the veracity of the assumption that corruption is always detrimental to economic growth. In this article, a panel data analysis has been used to examine 88 countries over the 1984 to 2011 period. The findings indicate that beyond an optimal threshold, both high and low corruption levels can decrease economic growth. Under this optimal threshold, a moderate level of corruption, defined by the point of reversal of the curve of the marginal corruption effect on growth, could have advantages for economic growth.

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