Business Intelligence

Corruption And The Institutional Environment For Growth

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Executive Summary

Several cross-country studies have found that corruption is detrimental to economic growth, but the findings are not universally robust. The authors utilize the economic freedom index to examine if corruption can facilitate growth by allowing entrepreneurs to avoid inefficient policies and regulations when economic freedom is limited. Using regression analysis, they find that corruption is growth enhancing when economic freedom is most limited but the beneficial impact of corruption decreases as economic freedom increases. Not all areas of economic freedom affect the corruption-growth relationship equally. In particular, they find that when they analyze individual areas of economic freedom the beneficial effect of corruption disappears most quickly when the size of government and the extent of regulation decrease.

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