Corruption and Economic Growth in India and Nigeria
Aim/purpose - Theoretical arguments about the impact of corruption on economic growth have divided economists into two groups. The first one believes that corruption is an obstruction to economic growth and development while the second - that corruption plays a positive role in the development process. Therefore, the arguments on the effects of corruption on economic growth are inconclusive. This study investigates the effects of corruption on economic growth as measured in real Gross Domestic Product (GDP) per capita growth in Nigeria and India due to the pervasive corruption in the two low-income countries. Design/methodology/approach - The study employed Mo's framework (2001) for investigating corruption and growth mechanism. The data for the study which covered 1980-2015 was extracted from the World Bank data repository. Corruption was measured by the Corruption Perception Index. Other variables are population growth rate, trade openness, education and the output of agriculture, industry and service sectors. Correlation coefficients were used to show a correlation between corruption and GDP growth rate for both countries. Ordinary Least Square (OLS) regression was used to estimate the effects of corruption on economic growth. Findings - The major findings of the study are: (1) Corruption has a stifling effect on economic growth when the measures of human capital, political instability and capital formation were not included in the estimation for India; (2) Corruption has a positive effect on economic growth when the measures of human capital, political instability and capital formation were included interchangeably and combined together in the estimation for India; (3) Corruption has a stifling effect on economic growth when the measures of human capital, political instability and capital formation were both included and excluded in the estimation for Nigeria; and (4) The transmission mechanism results show that corruption adversely affects economic growth through investment and human capital in both countries. Research implications/limitations - The implications of this study are that corruption produces a dampening effect on growth in both countries and the transmission channels were through investment and human capital. The limitation of the study has to do with the data. A better measure of corruption aside corruption perception index may produce different results. Originality/value/contribution - The unique contribution of the study is the investigation of the channel through which corruption affects economic growth in India and Nigeria.(original abstract)
- Aidt, T., Dutta, J., & Sena, V. (2008). Governance regimes, corruption, and growth: Theory and evidence. Journal of Comparative Economics, 36(2), 195-220. doi: 10.1016/j.jce.2007.11.004
- Azariadis C., & Lahiri, A. (2002). Do rich countries choose better governments? Contributions in Macroeconomics, 2(1), 1-39. doi: 10.2202/1534-6005.1051
- Bai, J., Jayachandran, S., Malesky, E. J., & Benjamin A. O. (2013). Does economic growth reduce corruption? Theory and evidence from Vietnam (Working Paper 19483). Cambridge, MA: NBER. doi: 10.3386/w19483
- Bardhan, P. (1997, September). Corruption and development: A review of issues. Journal of Economic Literature, 35(3), 1320-1346. Retrieved from http://www.jstor.org/stable/2729979
- Barro, R. (1991). Economic growth in a cross section of countries. The Quarterly Journal of Economics, 106(2), 407-443. Retrieved from http://www.jstor.org/stable/2937943. doi: 10.2307/2937943
- Barro, R. J. (2003). Determinants of economic growth in a panel of countries. Annals of Economics and Finance, 4, 231-274. Retrevied from http://down.aefweb.net/WorkingPapers/w505.pdf
- Barro, R. J., & Sala-i-Martin, X. (1995). Economic growth. New York: McGraw-Hill.
- Beck, P. J., & Maher, M. W. (1986) A comparison of bribery and bidding in thin markets. Economics Letters, 20, 1-5. Retrieved from https://deepblue.lib.umich.edu/bitstream/handle/2027.42/26307/0000392.pdf?sequence=1
- Benhabib, J., & Spiegel, M. M. (1994). The role of human capital in economic development: Evidence from aggregate cross-country data. Journal of Monetary Economics, 34(2), 143-173. doi: 10.1016/0304-3932(94)90047-7
- Cabaravdic, A., & Nilsson, M. (2017). The effect of corruption on economic growth. Does corruption show a significant effect on the growth of an economy? (Bachelor thesis in economics). Retrieved from http://www.diva-portal.se/smash/get/diva2:1107921/FULLTEXT01.pdf
- Capasso, S., & Santoro, L. (2018). Active and passive corruption: Theory and evidence. European Journal of Political Economy, 52, 103-119. Retrieved from https://ideas.repec.org/a/eee/poleco/v52y2018icp103-119.html. doi 10.1016/j.ejpoleco.2017.05.004
- d'Agostino, G., Dunne, J., & Pieroni, L. (2016a). Corruption and growth in Africa. European Journal of Political Economy, 43, 71-88. https://ideas.repec.org/a/eee/poleco/v43y2016icp71-88.html. doi: 10.1016/j.ejpoleco.2016.03.002
- Debroy P., & Bhandari F. (2011). Corruption in India. The World Finance Review, March 3. Retrieved from http://www.worldfinancialreview.com/?p=2346
- De Soto, H. (1990). The other path: The invisible revolution in the third world. Harper: New York.
- Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2002). The regulation of entry. The Quarterly Journal of Economics, 117(1), 1-37. Retrieved from https://academic.oup.com/qje/article/117/1/1/1851750
- Ernst & Young. (2013). Bribery and corruption: Ground reality in India. Retrieved from https://www.ey.com/in/en/services/assurance/fraud-investigation---dispute-services/bribery-and-corruption-ground-reality-in-india
- Ehrlich, I. (1999). Bureaucratic corruption and endogenous economic growth. Journal of Political Economy, 107(S6), S270-S293.
- Enofe, A. O., Oriaifoh, A., Akolo, I., & Oriaifoh, C. L. (2016). Corruption and Nigeria economic growth. International Journal of Advanced Academic Research Social & Management Sciences, 2(4), 26-35. Retrieved from http://www.ijaar.org/articles/volume2-number4/Social And Management Sciences/ijaar-mgmt-v2n4-a16-p6.pdf
- Gupta, S., Davoodi, H., & Alonso-Terme, R. (2002). Does corruption affect income inequality and poverty? Economics of Governance, 3(1), 23-45. Retrieved from https://EconPapers.repec.org/RePEc:spr:ecogov:v:3:y:2002:i:1:p:23-45
- Haque, M. E., & Kneller, R. (2015). Why does public investment fail to raise economic growth? The role of corruption. Manchester School, 83(6), 623-651. https://ideas.repec.org/a/bla/manchs/v83y2015i6p623-651.html
- Huntington, S. P. (1968). Political order in changing societies. New Haven, CT: Yale University Press.
- KPMG. (2011). Impact on economy and business environment. Survey on bribery and corruption - impact on economy and business environment. Retrieved from https://www.scribd.com/document/56792383/KPMG-Bribery-Survey-Report-Mar-2011
- Leff, N. (1964). Economic development through bureaucratic corruption. American Behavioral Scientist, 8(3), 8-14. doi: 10.1177/000276426400800303
- Leite, C., & Weidmann, J. (1999). Does mother Nature corrupt? Natural resources, corruption, and economic growth (Working Paper WP/99/85). Washington, DC: IMF. Retrieved from https://www.imf.org/external/pubs/ft/wp/1999/wp9985.pdf
- Levine, R., & Renelt, D. (1992). A sensitivity analysis of cross-country growth regressions. American Economic Review, 82(4), 942-963. Retrieved from https://www.jstor.org/stable/2117352?seq=1