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The impact of corruption on economic growth: a nonlinear evidence

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Abstract

On the basis of the lubricating corruption effect hypothesis (grease-the-wheels hypothesis), the impact of corruption on growth seems ambiguous. Therefore, the question that arises is how corruption affects economic growth, to what extent corruption can be tolerated and at what threshold it has a detrimental effect on an economy. This paper examines the impact of corruption on economic growth by testing the hypothesis that the relationship between these two variables is nonlinear. Moreover, the paper assesses whether the belief that corruption has detrimental effects on the economy is always true. This paper uses a panel data of 65 countries observed over the 1987 to 2021 period. The findings indicate that corruption can have a positive effect on growth. It has been found that beyond an optimal threshold, both high and low corruption levels can decrease economic growth. Under this threshold, a moderate level of corruption is defined by the point of reversal of the curve of the marginal corruption effect on growth. Such a threshold could have advantages for economic growth.

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Figure 2

Source: World Development Indicators and author’s own analyses

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Acknowledgements

The author would like to thank the anonymous referees for their useful comments, which contributed to increase the value of this paper. In addition, he would also like to thank and express his gratitude to the Editor for their valuable comments regarding the draft version of this paper.

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I declare again that no funding was provided for the completion of this study.

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Correspondence to Mohamed Ali Trabelsi.

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On behalf of myself as the sole author of this manuscript, I declare that there is no conflict of interests and that no funds, grants, or any other support in any form were received during the preparation of this manuscript. Data are available from the author upon reasonable request.

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Trabelsi, M.A. The impact of corruption on economic growth: a nonlinear evidence. J. Soc. Econ. Dev. (2024). https://doi.org/10.1007/s40847-023-00301-9

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