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Corruption and Economic Growth
Report

Corruption and Economic Growth

New Empirical Evidence

Klaus Gründler and Niklas Potrafke
Ifo, 2019
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8

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Does corruption “grease the wheels” of growth, or does it throw sand into the gears of an economy? The links between corruption and economic growth have never been well-defined. While many observers believe some degree of malfeasance can actually help when it sidesteps ineffective regulation, others hold that corruption blocks a nation’s economic progress by stifling its output and innovation. Economists Klaus Gründler and Niklas Potrafke, in this technical analysis for academics and students of political economy, offer new data that help shed light on this important question.

Summary

Research on the link between corruption and economic development had proven inconclusive.

Two hypotheses on corruption’s impacts on economic growth coexist: The first idea contends that malfeasance can help “grease the wheels” of an ineffectively regulated economy, while the second theory holds that corruption hinders productivity and entrepreneurship. Observations have tended to support the latter theory, particularly in countries with weak investment and poor governance.

Yet the evidence has not painted a clear picture. For example, in Africa, past research...

About the Authors

Klaus Gründler and Niklas Potrafke are economists at the ifo Institute – Leibniz Institute for Economic Research at the University of Munich.

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