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Abstract
Whether corruption supports or hampers economic growth is a vexed theme in development research, particularly at the sub-national level where research is scant. This paper uses corruption data from court reports to analyse how corruption affects economic performance at the sub-national level in Indonesia. The regression models use dynamic panel estimation incorporating spatial dependence, and dealing with endogeneity and omitted variables. We find a consistent negative effect of corruption on regional growth across all specifications. Spatial effects reveal the influence of neighbouring districts’ growth, which amplifies the negative impact of corruption. Evaluating potential pathways of corruption indicates government size, poverty, education, and infrastructure do not significantly mediate corruption at the sub-national level. The policy implication is that anti-corruption efforts need not only be targeted but also well-coordinated: merely maintaining the level of government service or provision of infrastructure does not address the negative consequence of corruption on regional economic growth.
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