Effects of corruption on economic growth through transmission channels in developing coutries

Abstract

This paper examines direct and indirect effects of corruption on economics growth in developing countries. Indirect effects of corruption on economic growth will be examined by five transmission channels such as government size, capital investment, trade openness, human capital, and political instability. With 35 developing countries in data set and OLS, 2SLS method, the result is that corruption has positive relationship with government expenditure, trade openness, human capital, and political instability. That means more corruption will make more government expenditure, trade openness, human capital, and political instability. However corruption only relates negatively with capital investment. And through the effects of these transmission channels on economic growth, we can infer that totally corruption has positive relationship with economic growth. The result in this paper is also an evidence of “grease the wheel” hypothesis in developing countries. This is like a careful remind on the policy of fighting against corruption because in developing countries a characteristic of corruption is positively related with economic growth.