Abstract
In this paper we investigate the impact of corruption on economic growth in Portugal over the period 1980-2018. The empirical approach makes use of a VAR model inspired by the standard Cobb-Douglas aggregate production function. The VAR model includes the capital stock, hours worked, total factor productivity and the corruption perceptions index (CPI) of Transparency International. The CPI combines several sources of information on the level of corruption in each country. The scale of this index goes from 0, the highest level of corruption, to 10, the lowest level. The magnitude of the estimated effect of corruption on economic growth in the unrestricted VAR model is large (and positive), but statistically not significantly different from zero. However, the results from the estimation of a structural VAR model with economically plausible long-run restrictions indicate modest gains from reducing corruption.
Highlights
By joining the European Economic Community – the European Union (EU) – in 1986, after the political revolution of 1974 and the first steps as a democracy, Portugal became officially committed to the European integration process, viewed as important in supporting the transition to a developed democracy and in achieving higher standards of living
In this paper we investigate the impact of corruption on economic growth in Portugal over the period 1980-2018
We estimated two VAR models, one with the corruption indicator in levels, the other with the first difference of the corruption index
Summary
By joining the European Economic Community – the European Union (EU) – in 1986, after the political revolution of 1974 and the first steps as a democracy (following 48 years of dictatorship), Portugal became officially committed to the European integration process, viewed as important in supporting the transition to a developed democracy and in achieving higher standards of living. The sign of the relationship between corruption and economic growth is an empirical issue. We address this issue for the case of Portugal over the period 1980-2018. Our main contribution is that we report estimates of the impact of corruption on economic growth in Portugal imposing the constraint that temporary shocks to corruption do not have long-run impacts on the level of the other variables in the VAR model and, on output.
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