ECONOMIC GROWTH AND CORRUPTION IN DEVELOPING ECONOMIES: EVIDENCE FROM LINEAR AND NON-LINEAR PANEL CAUSALITY TESTS

This paper aims at determining the causal relationship between economic growth and corruption in 42 developing countries using linear and non linear panel methods over the period 1998 to 2009. The findings show that the outcome of the causal association depends on the method used. Corruption appears to Granger cause economic growth when the linear panel causality tests are applied and economic growth seems to Granger lead corruption with the nonlinear panel procedures as the modus operandi. The general value of these results is that adequate institutional facilities must be in place in developing economies to reduce losses from corruption, especially within and after periods of economic growth.