Does corruption always sand the wheels of growth? A cross-national study in non-linear framework

Is corruption more growth-enhancing than growth-inhibitory? In this article we examine the effect of corruption on economic growth in a non-linear framework by utilising panel of over 150 countries for the period 1984-2009. The principal part of our analysis draws on recently published data about level of corruption reported by International Country Risk Guide. We supplement this with an additional analysis of a second dataset on corruption prepared by Transparency International since the middle of 1990s. Results suggest that corruption levels do not appear to reduce economic growth at all levels. Our analyses confirm that the level of corruption affects economic growth, but this effect is non-linear. Corruption typically enhances economic growth in countries where corruption is low. But once past a threshold, more corrupt practices inhibit economic growth. The results obtained after controlling for fixed effects and endogeneity biases by utilising system generalised methods of moments (SGMM), the most advanced, robust and well recognised technique in the literature.