The Effects of Corruption on Growth and Public Expenditure

The study of the causes and consequences of corruption has a long history in economics, dating back at least to the seminal contributions to the rent-seeking literature by Bhagwati, Krueger, Rose-Ackerman, Tullock and others. However, related empirical work has been rather limited, partly because the degree of efficiency of government institutions cannot easily be quantified. Corruption in particular is a difficult phenomenon to measure, owing to its very nature. The chapter provides a number of possible causes and consequences of corruption, with emphasis on those links that have been, or at least in principle could be, investigated through the use of cross-country regression analysis. It aims to present results on the effects of corruption on investment and economic growth by using a larger data set to expand the analysis of Mauro, and to present new evidence on the relationship between corruption and the composition of government expenditure.