The Comparative Politics of Corruption: Accounting for the East Asian Paradox in Empirical Studies of Corruption, Growth and Investment

Abstract

Numerous empirical studies demonstrate that corruption reduces investment and/or slows growth. But how robust are these relationships? This question is answered by conducting a series of crosscountry regression tests using four different corruption datasets. We find that corruption slows growth and/or reduces investment in most developing countries, particularly small developing countries, but increases growth in the large East Asian newly industrializing economies. The latter finding provides solid empirical support to a country case literature that explains the East Asian paradox––the combination of high corruption and high growth––in terms of stable and mutually beneficial exchanges of government promotional privileges for bribes and kickbacks.