Corruption and Economic Growth: Evidence from Egypt

Abstract

Based on a theoretical consideration of economic growth model, this study empirically investigates the direct and indirect impact of corruption on economic growth by incorporating the corruption index in the growth model in the case of Egypt. The model provides a simple theoretical framework in which the level of corruption as well as the effects of corruption on output variables; forging direct investments, government expenditure, openness and political instability are identified. Our main result provides empirical evidence suggesting that corruption increases inefficiencies in government expenditure and reduces investment and human capital, leading to a negative impact on output. In addition, the human capital, openness and political instability are the most important channel variables, through which corruption is likely to reduce growth.