Corruption and Economic Growth Nexus: Do Institutions Matter?

Abstract

The aim of this study is to investigate two central questions, first is to find the relationship between corruption and growth and second is to explore if institutions matter for growth. The study operationally focused on developed and developing economies and on Asian regions i.e. South Asia, East Asia and West Asia. For the purpose, Dynamic Panel Data (DPD) and Generalized Methods of Moments (GMM) are employed. This study incorporates the international country risk guide (ICRG) datasets along with other datasets. The study finds a complex and linear relationship between corruption and growth i.e. corruption has not always growth-inability action. It works as growth enhancing as in East Asia and South Asia, which supports “grease the wheels” hypothesis. The corruption appears a major hindrance to growth in West Asian region. The findings suggest that institutions exert a large and positive influence on economic growth in all panel with difference in magnitude. Whereas the institutions that reduce risk are not statistically significant in the case of South Asian region.