Modelling the dynamics of corruption and unemployment with heterogeneous labour

• Published in: Economic modelling Vol. 79; pp. 98 - 117
• Main Author: Lim, King Yoong
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.06.2019
• Subjects: Corruption; Economic growth; Public sector efficiency; Unemployment; Corruption; H30; Economic growth; H54; Unemployment; O41; Public sector efficiency
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2018.10.004

This paper presents an endogenous growth model with heterogeneous labour, endogenous unemployment, and public sector corruption. Unlike most previous studies, the model does not separate public officials and private individuals into two distinct groups. Instead, taking up bureaucratic appointment as a public servant is modelled as an occupational choice, which then allows for the endogenous determination of the proportion of public officials, the share of corrupt officials among them, and the public investment efficiency of the economy. The dynamics of endogenous corruption and unemployment are studied using numerical policy experiments based on a stylized representation of a middle-income African economy with high corruption and unemployment. The main finding is that, large-scale public infrastructure push has no effect on raising growth in an economy with high corruption. However, if preceded by social and anti-corruption policies that successfully induce a structural change, it will then be effective in raising growth. •Endogenous growth with heterogeneous labour, unemployment, public sector corruption.•Endogenous shares of public officials, corruption, and public investment efficiency.•Public infrastructure push can only be growth-enhancing after structural change.•Anti-Corruption and Social Reform Programme to precede Infrastructure Push.