Governance regimes, corruption and growth: Theory and evidence

We study the role of political accountability as a determinant of corruption and economic growth. Our model identifies two governance regimes defined by the quality of political institutions and shows that the relationship between corruption and growth is regime specific. We use a threshold model to estimate the impact of corruption on growth where corruption is treated as an endogenous variable. We find two governance regimes, conditional on the quality of political institutions. In the regime with high quality political institutions, corruption has a substantial negative impact on growth. In the regime with low quality institutions, corruption has no impact on growth. Journal of Comparative Economics 36 (2) (2008) 195-220. Faculty of Economics, University of Cambridge, Sidgwick Avenue, Austin Robinson Building, CB59DD Cambridge, UK; University of Birmingham, Birmingham, UK; Aston Business School, Aston University, Birmingham, UK. (c) 2007 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.