Is corruption bad for economic growth? Evidence from Asia-Pacific countries

Abstract

This study utilizes the bootstrap panel Granger causality approach, which incorporates both cross-sectional dependence and heterogeneity across countries, to investigate whether corruption negatively impacts economic growth in thirteen Asia-Pacific countries over the 1997–2013 period. The empirical results show that there is a significantly positive causality running from corruption to economic growth in South Korea, a significantly positive causality running from economic growth to corruption in China and no significant causality between corruption and economic growth for the remaining countries. According to the empirical results, we do not support the common perception that corruption is bad for economic growth for all thirteen Asia-Pacific. On the contrary, results of this study suggest that the “grease the wheels” hypothesis is supported for South Korea. Additionally, results of this study indicate that for most Asia-Pacific countries, policy makers’ use of anti-corruption policies to promote a country's economic development may not be effective. Finally, results of this study also suggest that for China, increase in economic growth leads to an increase in corruption.