Corruption and Economic Growth: Empirical Evidence from Algeria

Copyright © 2014 ISSR Journals. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. ABSTRACT: This study investigates the impact of corruption on economic growth in Algeria over the period 1995-2011 by using the Heritage Foundation’s freedom from corruption index and the World Bank’s control of corruption indicator. The Johansen cointegration test has been applied in order to investigate the existence of long-run relationships among the tested variables. As well as, the vector error correction model (VECM) has been employed to analyze the long-run and short- run dynamic relationships among the various time series. The initial findings indicate that both ‘freedom from corruption ’ and ‘control of corruption ’ have long run positive effects on enhancing economic growth in Algeria. It is also revealed that the human capital has an insignificant positive impact on economic growth in the long term. Moreover, VECM analysis suggests that all explanatory variables have positive and insignificant short-run effects on promoting economic growth except the ‘control of corruption ’ indicator. These results support the view that corruption sands the wheels of economic growth. Thus, the Algerian government should root out this scourge by finding the relevant solutions that must be supported with effective weapons such as transparency and tougher accountability standards