The resource curse and private investment: A theoretical model of the impact of corruption

Purpose: A neoclassical model of growth is augmented with the purpose of investigating the relationship between private investment, resource endowments, and corruption. It allows for the possibility that corruption influences the steady-state growth rate through its impact on private investment, resource endowment management, human capital, and governance. Design/methodology/approach: Corrupt environments critically affect long-run sustainable economic development through the private investment decision. The groundwork may significantly contribute to emerging economies, particularly Middle East and North African countries with abundant natural resources. Understanding corruption is important for policy recommendations that can fuel the reform agenda. The theoretical model incorporates the potential direct impact and potential indirect effects of corruption on economic output by examining its influence on resource endowment management, the level of private investment and governance. The neoclassical approach is advantageous in that it allows for explicit incorporation of the indirect effects of corruption and potential tradeoffs. Findings: One conclusion is that for highly corrupt countries, the marginal benefit to output of reducing corruption outweighs virtually any other policy action. The importance of strong governance as a mitigating force against corruption\u27s negative effects is also highlighted. In addition, it indicates that the timing of reform efforts is significant. Originality/value: The literature lacks a theoretical framework incorporating the potential indirect effect of corruption on output through resource endowment management and the direct effect of corruption through its impact on governance. The literature has only examined the hypothesized influences separately. The paper explicitly links corruption, resource endowments, private investment, and economic output. © Emerald Group Publishing Limited

Corruption, Investment and Growth in Developing Countries

DRMI Working Paper SeriesThe series is intended to convey the preliminary results of [DRMI] ongoing research. The research described in these papers is preliminary and has not completed the usual review process for Institute publications. We welcome feedback from readers and encourage you to convey your comments and criticisms directly to the authors

Corruption, governance, investment and growth in emerging markets

The article of record as published may be found at https://doi.org/10.1080/00036840701439363The article investigates the potential impact of corruption on economic growth by examining the effect that corruption may have on several significant determinants of economic growth, namely, investment in human, private and public capital, and on governance. Our theoretical approach allows for corruption to influence economic growth directly and indirectly through different investment and governance channels. All previous empirical work on this issue has been based on national income and product accounts (NIPA) data, which do not normally break down gross domestic investment into its private and public sector, and if they do, they misclassify investment by public enterprises as private investment, potentially biasing empirical findings. In this article we use a data set from the International Finance Corporation that bypasses these problems. We find that the impact of corruption on the level of public investment appears to be more ambiguous than it has been found in the previous literature. We, however, find that the impact of corruption on the accumulation of private capital is significantly more damaging than what has been pre- viously found. We also find that the impact of corruption on governance is unambiguously negative, which further deters economic growth