Research Article | | Peer-Reviewed

Nexus Between Corruption and Economic Growth in Ethiopia: An Auto Regressive Distributed Lag Bounds Test Method

Published in Economics (Volume 13, Issue 1)
Received: 7 December 2023     Accepted: 23 December 2023     Published: 8 January 2024
Views:       Downloads:
Abstract

Ethiopian economic growth and corruption were examined over the long and short terms using annual time series data from 1996 to 2021. After taking into consideration human capital and the public sector, it has expanded Solow's (1956) neoclassical model of economic growth to include corruption by using a particular functional form for the entire factor of productivity. government spending on education, total fixed capital formation, and public spending. The Auto-Regressive Distributed Lag Bounds Test has been used to investigate the possibility of an ongoing relationship between corruption and real GDP per capita. The findings of the co-integration test confirmed the presence of a sustained correlation between corruption, real GDP per capita, and other variables influencing real GDP per capita. According to long-term evaluations, corruption has a significant impact on real GDP per capita. Real GDP was positively and significantly impacted by public investment in education, spending by governments on finances, and the creation of gross fixed assets. Model for Error Correction: The imbalance brought on by the shock of the previous year converges to the long-run equilibrium in the current year at a rate of -52%. The policy conclusion is that to ensure robust economic growth, Ethiopian governments at all levels need to develop efficient systems for combating corruption.

Published in Economics (Volume 13, Issue 1)
DOI 10.11648/j.eco.20241301.11
Page(s) 1-11
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Corruption, Granger Causality, Gross Fixed Capital Formation, Real GDP Per Capita

References
[1] Akçay, Selcuk. (2006). Corruption and Human Development. Cato Journal, 26, No. 1.
[2] Aidt, Toke S. (2016). Rent-seeking and Economics of Corruption. Constitutional Political Economy 27: 142–57.
[3] Aidt, Toke. (2003). Economic Analysis of Corruption: A Survey, the Economic Journal, 113, November, pp. 632-652.
[4] Arrow K. and Kurz. M. (1970). Public investment, the rate of return and optimal fiscal policy. The Johns Hopkins University Press, Baltimore.
[5] Banerjee, A., Dolado, J. J., Galbraith, J. W., and. Hendry D. F. (1993). Co-integration, Error correction and the Econometric Analysis of Non-stationary Data, Oxford University Press, Oxford.
[6] Barreto, R. A. (2000). Endogenous Corruption in a Neoclassical Growth Model. European Economic Review, 44(1), 35-60.
[7] Barro, R. J. (1990). Government Spending in a Simple Model of Endogenous Growth. Journal of Political Economy, 98(5:2), S103-S125.
[8] Barro, R. J. (1991). Economic growth in a cross section of countries. Quarterly Journal of Economics, 106(2), 407-443.
[9] Barro, R. J. (1996). Determinants of Economic Growth: A Cross-Country Empirical Study. NBER Working Paper, No. 5698.
[10] Berhanu Kuma and Girma Gata. (2023). Factors Affecting Food Price Inflation in Ethiopia: An Auto Regressive Distributed Lag Bounds Test Method, Journal of Agriculture and Food Research, 12, 1-8.
[11] Breit, Eric, Thomas T. Lennerfors, and Lena Olaison. (2015). Critiquing corruption: A turn to theory. Ephmera 15: 319–36.
[12] Brown, R. L., Durbin, J. and Evans, J. M. (1975). Techniques for Testing the Consistency of Regression Relations Over Time, Journal of the Royal Statistical Society, 37, 149-92.
[13] Brunetti, A. (1997). Political variables in cross-country growth analysis. Journal of Economic Surveys, 11(2), 163-190.
[14] Budínský Petr and Radim Valenˇcík. (2009). Applications of theory of redistribution Systems to Analysis Competitivita. Ekonomický ˇcasopis 57: 291–306.
[15] Campos, J. E., Lien, D. and Pradhan, S. (1999). The Impact of Corruption on Investment: Predictability Matters. World Development, 27 (6), 1059-1067.
[16] Campos, J. E. (2001). Corruption: the boom and bust of East Asia. Quezon City: Ateneo de Manila University Press.
[17] Del Monte, A. and Papagni, E. (2001). Public expenditure, corruption, and economic growth: The case of Italy. European Journal of Political Economy 17, 1–16.
[18] Dreher, A and Herzfel, T. (2005). The Economic Costs of Corruption: A Survey and New Evidence, Unpublished available at http://mpra.ub.uni-muenchen.de/23578/.
[19] Dickey, D. A. and Fuller W. A. (1981). Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root, Econometrica, 49, 1057-1072. 35.
[20] Ehrlich, I. and Lui, F. T. (1999). Bureaucratic Corruption and Endogenous Economic Growth. Journal of Political Economy, 107(6:2), S270-S293.
[21] Enders, W. (2004) Applied Econometric Time Series, 2nd Edition. Engle, R. and Granger, C. (1987). Co-integration and Error Correction Representation: Estimation and Testing”. Econometrica 55, 251-276.
[22] Furubotn, Erik G., and Rudolf Richter. (2005). Institutions and Economic Theory, 2nd ed. Michigan: The University of Michigan Press.
[23] Groenewegen, John, Antoon Spithoven, and Annnette Van Den Berg. (2010). Institutional Economics: An Introduction. London: Palgrave Macmilian.
[24] Groningen Growth and Development Centre (GGDC). Faculty of Economics, University of Groningen, Netherlands: GGDC: www.ggdc.net Gupta, S., De Mello, L. and Sharan, R. (2001): Corruption and Military Spending. European Journal of Political Economy, 17 (4), 749-777.
[25] Gupta, S., Davoodi, H. R. and Tiongson, E. R. (2002). Corruption and the Provision of Health Care and Education Services, Governance, Corruption, & Economic Performance, International Monetary Fund, Publication Services, Washington, D. C., 254-279.
[26] Huntington, S. P. (1968). Political Order in Changing Societies. New Haven: Yale University Press.
[27] Johansen, S. and Juselius, K. (1990). Maximum Likelihood Estimation and Inference on Co-integration with Application to the Demand for Money, Oxford Bulletin of Economics and Statistics 52, 169-210.
[28] Khan, M. M. (1998) Political and Administrative Corruption: Concepts, Comparative Experiences and Bangladesh Case. A paper prepared for Transparency International Bangladesh (TIB), Dhaka.
[29] Kiltgaard, R. (1998). International cooperation against corruption, IMF/World Bank, Finance and Development, 35(1), 3.
[30] Knack, S., and Keefer, P. (1995). Institutions and Economic Performance: Cross Country Tests Using Alternative Institutional Measures, Economics and Politics, 7, 207- 227.
[31] Lambsdorff, J. G. (2003). How corruption affects productivity. Kyklos 56(4), 457–474.
[32] Lambsdorff, J. G. (1999). Corruption in Empirical Research-A Review. Transparency International Working Paper.
[33] Leff, N. (1964). Economic Development through Bureaucratic Corruption. America Behavioural Scientist, 8, 8-14.
[34] Levine, R. and Renelt, D. (1992). A sensitivity analysis of cross-country growth regressions. American Economic Review, 82, 942-963. 36.
[35] Li, H. Lixin, C. Xu and Zou, H. F. (2000). Corruption, Income Distribution, and Growth. Economics and Politics, 12 (2), 155-182.
[36] Lui, F. (1985). An equilibrium queuing model of bribery, Journal of Political Economy, 93, 760-781.
[37] Mankiw, G., Romer, D. and Weil, D. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107, 407–37.
[38] Mauro, P. (1998). Corruption and the Composition of Government Expenditure. Journal of Public Economics, 69(2), 263-279.
[39] Mauro, P. (1996). The Effects of Corruption on Growth, Investment, and Government Expenditure. IMF Working Paper, 96/98.
[40] Mauro, P. (1995). Corruption and Growth. Quarterly Journal of Economics, 110(3), 681- 712.
[41] Mo, P. H. (2001). Corruption and Economic Growth. Journal of Comparative Economics, 29(1), 66-79.
[42] Mustafa, S. (1997):“Corruption Costs Millions, says UNDP”, Financial Express July, 31. Murphy, K. M., Shleifer, A. and Vishny, R. W. (1993). Why Is Rent-Seeking So Costly to Growth? American Economic Review, 83(2), 409-414.
[43] Myint, U. (2000). Corruption: Causes, Consequences and Cures. Asia-Pacific Development Journal, 7(2), 33-58.
[44] Narayan, P. K. (2004). Reformulating critical values for the bounds F-statistics approach to co-integration: an application to the tourism demand model for Fiji”, Department of Economics Discussion Papers No. 02/04, Monash University, Melbourne, Australia. North, Douglass C. (1991a). Institutions. Journal of Economic Perspective 5: 97–112.
[45] North, Douglass C. (1990). Institutions, Institutional Changes and Economic Performance. New York: Cambridge University Press.
[46] Ouattara, B. (2004). Foreign Aid and Fiscal Policy in Senegal. Mimeo University of Manchester. Pellegrini, L. and Gerlagh R. (2004). Corruption’s Effect on Growth and its Transmission Channels, Kyklos, 57 (3), 429-456.
[47] Pesaran, M. H. and Shin Y. (1999). An Autoregressive Distributed Lag Modelling Approach to Co-integration Analysis, In Strom, S. (Ed.): Econometrics and Economic Theory in 20th Century: The Ragnar Frisch Centennial Symposium, Chapter 11, Cambridge University Press, Cambridge.
[48] Pesaran, M. H., Y. Shin and Smith R. J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics 16, 289-326. 37.
[49] Phillips, P. C. B. and Perron P. (1988). Testing for a Unit Root in Time Series Regression, Press. Public Economics 69: 263-279.
[50] Pozsgai-Alvarez and Joseph. (2020). The abuse of entrusted power for private gain: Meaning, nature and theoretical evolution. Crime, Law and Social Change 74: 433–55.
[51] Pulok, M. H. (2010). The impact of corruption on economic development of Bangladesh: evidence on the basis of extended Solow model, Master’s Thesis, Stockholm University. https://mpra.ub.uni-muenchen.de/28755/.
[52] Rahman, A., Kisunko, G., and Kapoor, K. (2000). Estimating the Effects of Corruption: Implications for Bangladesh (No. 2479). Washington DC: The World Bank. Rock, M. T. and Bonnett, H. (2004). The Comparative Politics of Corruption: Accounting for the East Asian Paradox in Empirical Studies of Corruption, Growth and Investment, World Development, 32 (6), 999-1017.
[53] Rose-Ackerman, S. (1978). Corruption: A Study in Political Economy. New York: Academic Press.
[54] Shimelis (2007). Fighting Corruption and Safeguarding Integrity 2-5 April 2007. Addis Ababa: Salam printing agency.
[55] Transparency International (2009). Corruption Perception Index (CPI). Berlin, Germany; www.transparency.org/policy_research/surveys_indices/cpi/2009.
[56] Transparency International (2003). Corruption Perception Index 2003, Press Release Available at www.transparency.org.
[57] Shleifer, A and Vishny, R. W. (1993). Corruption. Quarterly Journal of Economics, 108(3), 599-617.
[58] Solow, R. M. (1956). A Contribution to the Theory of Economic Growth. Quarterly Journal of Economics, 70, 65–94.
[59] Tanzi, V. and Davoodi, H. (1997). Corruption, Public Investment and Growth. IMF Working Paper (Vol. 97/139). Washington, D. C.: International Monetary Fund. The PRS Group (2010). International Country Risk Guide (ICRG) East Syracuse, NY, USA; http://www.prsgroup.com/ Transparency International Bangladesh (TIB): www.tiBangladesh.org.
[60] Valenˇcík, Radim and Petr Wawrosz. (2014). How to Describe Affinities in Redistribution Systems? In Current Trends in the Public Sector Research, Proceedings of the 18th International Conference. Edited by Dagnar Špalková and Lenka Matˇejová. Brno: Department of the Public Administration, Faculty of Economics and Administration, Masaryk University, pp. 212–21.
[61] Wei, S. J. (2001). Corruption in Economic Transition and Development: Grease or Sand?? Presented at the UNECE Spring Seminar in Geneva on May 7, 2001.
[62] Wooldridge, J. M. (2006). Introductory Econometrics: A Modern Approach. 3rd Edition.
[63] World Bank (2013). Helping Countries Combat Corruption. The Role of the World Bank. www1.worldbank.org/publicsector/anticorrupt/corruptn/coridx.htm
[64] World Bank (1997). Helping Countries Combat Corruption. The Role of the World Bank. www1.worldbank.org/publicsector/anticorrupt/corruptn/coridx.htm.
[65] World Bank (2010). Word Development Indicators (WDI Database). www.data.worldbank.org/data-catalog/world-development indicators.
Cite This Article
  • APA Style

    Tadewos, T., Kuma, B. (2024). Nexus Between Corruption and Economic Growth in Ethiopia: An Auto Regressive Distributed Lag Bounds Test Method. Economics, 13(1), 1-11. https://doi.org/10.11648/j.eco.20241301.11

    Copy | Download

    ACS Style

    Tadewos, T.; Kuma, B. Nexus Between Corruption and Economic Growth in Ethiopia: An Auto Regressive Distributed Lag Bounds Test Method. Economics. 2024, 13(1), 1-11. doi: 10.11648/j.eco.20241301.11

    Copy | Download

    AMA Style

    Tadewos T, Kuma B. Nexus Between Corruption and Economic Growth in Ethiopia: An Auto Regressive Distributed Lag Bounds Test Method. Economics. 2024;13(1):1-11. doi: 10.11648/j.eco.20241301.11

    Copy | Download

  • @article{10.11648/j.eco.20241301.11,
      author = {Tarekegn Tadewos and Berhanu Kuma},
      title = {Nexus Between Corruption and Economic Growth in Ethiopia: An Auto Regressive Distributed Lag Bounds Test Method},
      journal = {Economics},
      volume = {13},
      number = {1},
      pages = {1-11},
      doi = {10.11648/j.eco.20241301.11},
      url = {https://doi.org/10.11648/j.eco.20241301.11},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20241301.11},
      abstract = {Ethiopian economic growth and corruption were examined over the long and short terms using annual time series data from 1996 to 2021. After taking into consideration human capital and the public sector, it has expanded Solow's (1956) neoclassical model of economic growth to include corruption by using a particular functional form for the entire factor of productivity. government spending on education, total fixed capital formation, and public spending. The Auto-Regressive Distributed Lag Bounds Test has been used to investigate the possibility of an ongoing relationship between corruption and real GDP per capita. The findings of the co-integration test confirmed the presence of a sustained correlation between corruption, real GDP per capita, and other variables influencing real GDP per capita. According to long-term evaluations, corruption has a significant impact on real GDP per capita. Real GDP was positively and significantly impacted by public investment in education, spending by governments on finances, and the creation of gross fixed assets. Model for Error Correction: The imbalance brought on by the shock of the previous year converges to the long-run equilibrium in the current year at a rate of -52%. The policy conclusion is that to ensure robust economic growth, Ethiopian governments at all levels need to develop efficient systems for combating corruption.
    },
     year = {2024}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - Nexus Between Corruption and Economic Growth in Ethiopia: An Auto Regressive Distributed Lag Bounds Test Method
    AU  - Tarekegn Tadewos
    AU  - Berhanu Kuma
    Y1  - 2024/01/08
    PY  - 2024
    N1  - https://doi.org/10.11648/j.eco.20241301.11
    DO  - 10.11648/j.eco.20241301.11
    T2  - Economics
    JF  - Economics
    JO  - Economics
    SP  - 1
    EP  - 11
    PB  - Science Publishing Group
    SN  - 2376-6603
    UR  - https://doi.org/10.11648/j.eco.20241301.11
    AB  - Ethiopian economic growth and corruption were examined over the long and short terms using annual time series data from 1996 to 2021. After taking into consideration human capital and the public sector, it has expanded Solow's (1956) neoclassical model of economic growth to include corruption by using a particular functional form for the entire factor of productivity. government spending on education, total fixed capital formation, and public spending. The Auto-Regressive Distributed Lag Bounds Test has been used to investigate the possibility of an ongoing relationship between corruption and real GDP per capita. The findings of the co-integration test confirmed the presence of a sustained correlation between corruption, real GDP per capita, and other variables influencing real GDP per capita. According to long-term evaluations, corruption has a significant impact on real GDP per capita. Real GDP was positively and significantly impacted by public investment in education, spending by governments on finances, and the creation of gross fixed assets. Model for Error Correction: The imbalance brought on by the shock of the previous year converges to the long-run equilibrium in the current year at a rate of -52%. The policy conclusion is that to ensure robust economic growth, Ethiopian governments at all levels need to develop efficient systems for combating corruption.
    
    VL  - 13
    IS  - 1
    ER  - 

    Copy | Download

Author Information
  • Agricultural Economics Department, Wolaita Sodo University, Wolaita Sodo, Ethiopia

  • Agricultural Economics Department, Wolaita Sodo University, Wolaita Sodo, Ethiopia

  • Sections