Date Added: Nov 2009
Recent empirical studies find that the direct effect of corruption on growth is statistically insignificant. However, there exists a discrepancy between these results and the intuition that corruption reduces overall productivity, because total factor productivity also depends on the quality of institutions and their efficiency. The current paper addresses this issue and offers a new perspective on growth effects of corruption and shows that direct and indirect growth effects of corruption can be statistically significant. Moreover, the empirical results confirm the existence of both negative and positive growth effect of corruption.