Does Corruption Grease or Sand the Wheels of Growth?

• Published in: Public choice Vol. 122; no. 1/2; pp. 69 - 97
• Main Authors: Méon, Pierre-Guillaume, Sekkat, Khalid
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer 01.01.2005; Springer Nature B.V
• Subjects: 1130; 1210; 9130; Bribery; Bureaucracy; Bureaucrats; Business ethics; Civil service; Coefficients; Consumer Price Index; Corruption; Corruption in government; Cost-benefit analysis; Development; Economic activity; Economic Development; Economic growth; Economic impact; Economic theory; Efficiency; Experimental/theoretical; Financial investments; Governance; Government corruption; Gross domestic product indices; Hypotheses; Hypothesis testing; International organizations; Investment; Political corruption; Political violence; Politics & political behavior; Public choice; Public investments; Rule of law; Studies
• ISSN: 0048-5829; 1573-7101
• DOI: 10.1007/s11127-005-3988-0

This paper assesses the relationship between the impact of corruption on growth and investment and the quality of governance in a sample of 63 to 71 countries between 1970 and 1998. Like previous studies, we find a negative effect of corruption on both growth and investment. Unlike previous studies, we find that corruption has a negative impact on growth independently from its impact on investment. These impacts are, however, different depending on the quality of governance. They tend to worsen when indicators of the quality of governance deteriorate. This supports the "sand the wheels" view on corruption and contradicts the "grease the wheels" view, which postulates that corruption may help compensate bad governance.