Corruption, Democracy, and Economic Growth: Does Conditionality Matter?

Abstract

This paper gives insight about the role of democracy in two competing hypotheses whether corruption ‘greases the wheels’ or ‘sands the wheels’ of bureaucracy. The study also examined whether conditional cooperation between corruption and democracy matters or not in this regard. The empirical results indicate that democracy plays an essential role in determining the corruption-growth relationship, as the coefficient of interaction term between corruption and democracy is negative and significant. The results support the hypothesis that corruption greases the wheels of administration and thereby promotes growth in countries having poor democratic norm, and second hypothesis holds in case of higher degree of democracy. The results of the study suggest that promotion of democratic norms is very essential to curb the corruption level and to boost the economic performance of the nation. Because institutional development promotes the check and balance system in the country that enhances economic growth through increase in investment.