Does corruption have a significant effect on economic growth? : An empirical analysis examining the relationship between corruption and economic growth in developing countries

Corruption is a major cause and result of poverty around the globe. It arises at all levels of society, from national governments and military to small businesses and sports. Corruption affects all elements of society in some way as it undermines democracy and economic growth as well as the environment and people’s health. The main purpose of this thesis is to examine if corruption has a significant effect on economic growth in developing countries. The empirical analysis is conducted with a regression analysis, using data from recognized institutions. Other variables that can affect GDP per capita growth are also examined such as the level of democracy, fertility rate, life expectancy, education and the Initial GDP per capita to test for conditional convergence. In our main model, the empirical results show that corruption does not have a significant effect on economic growth but this is basically due to that the model exhibits multicollinearity. In our second model, where we omitted the variables Democracy, Initial GDP and Life expectancy, we found that corruption has a significant, negative effect on economic growth. This is in accordance with previous empirical results which hold that more corruption in a nation leads to less economic growth.