Investigating the Impact of Corruption on Investment and Economic Growth

The purpose of this study was to investigate the impact of corruption on investment and economic growth , Which is examined using an open economic model and endogenous growth model with the mobilization of international capital. In particular, this model predicts that corruption will negatively impact investment and economic growth through the risk of corruption. For practical and experimental testing of these predictions, 42 countries for the period 2006 to 2019 were considered as a research sample with GMM estimating technique. The results showed: the corruption hampers growth through its impact on investment in an open economy by diverting international investment. The uncertainty induced by corruption acts on entrepreneurship and productive action. Thus, it decreases the return on investment and increases its variance, which discourages investment activities. The richer countries with better access to international financing should be growing faster and be less prone than emerging economies to the adverse effects of corruption. Finally, the interaction term between corruption and investment and its effects on economic growth is negative and significant, appearing to confirm the notion that less-invested countries are more prone to the adverse effects of corruption. This may suggest that the partial effect of corruption on growth varies by level of investment. In addition, for countries with low levels of investment, one would expect significant effects of corruption on economic growth attributable to increased uncertainty and instability.