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.
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We thank an anonymous referee for very helpful comments, which substantially improved the paper. We also benefited from very useful discussions with participants to the “Institutions, growth and development” conference in Perpignan, 2003, and the 2003 Annual Meeting of the European Public Choice Society, in Aarhus, and with seminar participants at the University Robert Schuman of Strasbourg and the University Louis Pasteur of Strasbourg. We acknowledge financial support from the Research Fund at the ULB.
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Méon, PG., Sekkat, K. Does corruption grease or sand the wheels of growth?. Public Choice 122, 69–97 (2005). https://doi.org/10.1007/s11127-005-3988-0
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