Cross-sectional analysis demonstrates that corruption reduces investment and economic growth across countries, indicating that institutional quality directly drives national development.
This paper analyzes a newly assembled data set consisting of subjective indices of corruption, the amount of red tape, the efficiency of the judicial system, and various categories of political stability for a cross section of countries. Corruption is found to lower investment, thereby lowering economic growth. The results are robust to controlling for endogeneity by using an index of ethnolinguistic fractionalization as an instrument.
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Paolo Mauro (1995) studied this question.
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