In this paper, we examine the growth effects of government expenditure for a panel of 30 developi... more In this paper, we examine the growth effects of government expenditure for a panel of 30 developing countries over the 1970s and 1980s, with a particular focus on disaggregated government expenditures. Our meth-odology improves on previous research on this topic by explicitly recog-nizing the role of the government budget constraint and the possible biases arising from omitted variables. Our primary results are twofold. First, the share of government capital expenditure in GDP is positively and significantly correlated with economic growth, but current expendi-ture is insignificant. Second, at the disaggregated level, government investment in education and total expenditures in education are the only outlays that are significantly associated with growth once the budget constraint and omitted variables are taken into consideration. 1
This paper presents an analysis of the joint determination of bu-reaucratic corruption and econom... more This paper presents an analysis of the joint determination of bu-reaucratic corruption and economic development. The analysis is based on a simple neo-classical growth model in which bureaucrats are employed as agents of the government to collect taxes from house-holds. Corruption is reflected in bribery and tax evasion as bureau-crats conspire with households in providing false information to the government. Costly concealment of this activity leads to a loss of re-sources available for productive investments. The incentive for a bu-reaucrat to accept a bribe depends on economy-wide outcomes which, in turn, depend on the number of other bureaucrats who accept bribes. We establish the existence of multiple development regimes, together with the possibility of multiple, frequency-dependent equilibria. The predictions of our analysis accord strongly with recent empirical evi-dence.
We investigate the empirical relationship between decentralisation and corruption. Using a newly ... more We investigate the empirical relationship between decentralisation and corruption. Using a newly assembled dataset containing data for up to 174 countries, we revisit the empirical evidence and seek to explain the incon-sistent results that exist in the relevant literature. We find that not only results differ due to the use of different specifications and data but more im-portantly because previous research overlooks the relationship between dif-ferent dimensions of decentralisation. We propose an approach where more than one dimension of decentralisation enter the econometric model simul-taneously. In this context, we analyze the existence of direct and indirect effects of these aspects on corruption. Our results suggest that both fiscal decentralisation and constitutional centralization (unitarism) are simulta-neously associated to lower corruption. Furthermore, we find that certain forms of political decentralisation (local elections) worsen the positive ef-fect of constitutiona...
This paper investigates the relationship between public investment in transportation and communic... more This paper investigates the relationship between public investment in transportation and communication and economic growth using traditional instrumental estimation and a mixed fixed and random coefficient approach in the context of a dynamic panel frame-work. We find that there is a dynamic effect of public investment in transportation and communication on economic growth and its impact is positive. In comparison with earlier studies, our estimated coefficients are somewhat lower. However, for the re-verse causal relationship proposed by the investment acceleration hypothesis, we find that there is significant heterogeneity across countries and our empirical study does not support the presence of reverse causality. Key Words: Causality, Dynamic panel, Public investment in transport and commu-
Emran Haque and Richard Kneller both wish to thank the Leverhulme Trust (programme grant F114/BF)... more Emran Haque and Richard Kneller both wish to thank the Leverhulme Trust (programme grant F114/BF) for financial support. Corruption Clubs:
This paper studies the relationship between corruption and decentralisation from a macroeconomic ... more This paper studies the relationship between corruption and decentralisation from a macroeconomic perspective. Providing a macroeconomic analysis may help to understand better the links and channels between corruption, decentralisation and economic development. The analysis presented in this paper is unique in that provides an explicit formulation of the relationship between corruption, decentralisation and economic development. We bring together the theoretical and empirical predictions of both the traditional and modern fiscal federalism theories and find that the effect of decentralisation on development depends crucially on the existence and extent of corruption. Without corruption, decentralisation is unambiguously the best outcome for development. However, if corruption is pervasive, decentralisation may be associated to lower capital accumulation than centralisation. This result is more likely to be observed in developing countries with weak local political institutions and si...
This paper presents a dynamic general equilibrium analysis of public sector corruption and econom... more This paper presents a dynamic general equilibrium analysis of public sector corruption and economic growth. In an economy with government intervention and capital accumulation, state-appointed bureaucrats are charged with the responsibility for procuring public goods which contribute to productive efficiency. Corruption arises because of an opportunity for bureaucrats to appropriate public funds by misinforming the government about the cost and quality of public goods provision. The incentive for each bureaucrat to do this depends on economy-wide outcomes which, in turn, depend on the behaviour of all bureaucrats. We establish the existence of multiple development regimes, together with the possibility of multiple, frequency-dependent equilibria. The predictions of our analysis accord strongly with recent empirical evidence on the causes and consequences of corruption in public office. 1
Economic development and bureaucratic corruption are determined jointly in a dynamic general equi... more Economic development and bureaucratic corruption are determined jointly in a dynamic general equilibrium model of growth, bribery and tax evasion. Corruption arises from the incentives of public and private agents to conspire in the concealment of information from the government. These incentives depend on aggregate economic activity which, in turn, depends on the incidence of corruption. The model produces multiple development regimes, transition between which may or may not occur. In accordance with recent empirical evidence, the relationship between corruption and development is predicted to be negative. 1
We consider final goods producers’ preference for horizontal product differentiation in the prese... more We consider final goods producers’ preference for horizontal product differentiation in the presence of strategic input price determination. Final goods producers may not prefer maximal differentiation but may prefer moderate differentiation under both Cournot and Bertrand competition in the final goods market if product differentiation does not increase the market size significantly and there is either free entry in the input market or the input supplier has increasing returns to scale technology. Thus, we provide a new rationale for moderate product differentiation. Our reasons are different from the existing reasons of mixed pricing strategy, endogenous leadership, no-buy option for the consumers and the relative performance incentive schemes.
This paper tests the proposition that fiscal transparency, measured by a newly constructed data o... more This paper tests the proposition that fiscal transparency, measured by a newly constructed data on budget openness, can be a powerful control on corruption. This result is robust to the choice of index of corruption, conditioning variables, country sample, exclusion of outliers, and the use of different instrumentation and estimation techniques.
International Political Economy: Investment & Finance eJournal, 2017
Although empirical evidence shows that a lower trade cost and higher FDI may go hand in hand, the... more Although empirical evidence shows that a lower trade cost and higher FDI may go hand in hand, the well-known “proximity-concentration” hypothesis does not support this view. We provide a simple explanation for this phenomenon. We show that a lower trade cost on the intermediate goods (with or without a trade cost reduction on the final goods) increases the incentive for FDI in the final goods market. In this respect, we show the roles played by the production technologies of the firms.
In this paper, we examine the growth effects of public investment in the presence of corruption. ... more In this paper, we examine the growth effects of public investment in the presence of corruption. Our methodology improves on previous research on this topic by explicitly recognizing the role of simultaneity between public investment, corruption and growth and the possible biases arising from omission of correlated variables from the single reduced form equation based analysis. We use three-stage least squares method in a panel set up for a system of four equations on growth, public investment, corruption and private investment. Our primary results are twofold. First, corruption increases public investment. Second, corruption reduces the returns to public investment and makes it ineffective in raising economic growth.
Page 1. PANOECONOMICUS, 2009, 3, pp. 327-357 UDC 330.35.055.2 DOI: 10.2298/ PAN0903327Y ORIGINAL ... more Page 1. PANOECONOMICUS, 2009, 3, pp. 327-357 UDC 330.35.055.2 DOI: 10.2298/ PAN0903327Y ORIGINAL SCIENTIFIC PAPER Développement financier et croissance économique : Rôle de la qualité des institutions * Abdelkarim Yahyaoui ♣ et Atef Rahmani ♦ ...
We consider final goods producers' preference for horizontal product differentiation in the p... more We consider final goods producers' preference for horizontal product differentiation in the presence of strategic input price determination. Final goods producers may not prefer maximal differentiation but may prefer moderate differentiation under both Cournot and Bertrand competition in the final goods market if product differentiation does not increase the market size significantly and there is either free entry in the input market or the input supplier has increasing returns to scale technology. Thus, we provide a new rationale for moderate product differentiation. Our reasons are different from the existing reasons of mixed pricing strategy, endogenous leadership, no-buy option for the consumers and the relative performance incentive schemes.
Economic and rent-seeking outcomes are determined jointly in a dynamic general equilibrium model ... more Economic and rent-seeking outcomes are determined jointly in a dynamic general equilibrium model of corruption, public spending and growth. In an economy with government intervention and capital accumulation, state-appointed bureaucrats are responsible for providing public goods, which contribute to productive efficiency. Corruption arises because of an opportunity for bureaucrats to appropriate public funds with an endogenous probability of being detected and punished. Given this probability, which depends on aggregate outcomes, each agent maximises her expected lifetime utility by choosing consumption and savings. The model produces multiple development regimes, which yield different predictions about detection of corruption, public spending and investment depending on initial conditions. These predictions accord strongly with the empirical evidence on corruption and development. JEL classification: D73, H41, K42, O11, O17
This paper provides an explanation for recent empirical evidence on the heterogeneous effects of ... more This paper provides an explanation for recent empirical evidence on the heterogeneous effects of human capital on economic growth in developing countries. In a two-period overlapping generations economy with physical and capital accumulation, state-appointed bureaucrats are responsible for procuring productive public goods. Corruption arises because of an opportunity for bureaucrats to misappropriate public funds. The decision of the corruptible bureaucrat affects public finances and hence the capital accumulation in the economy. Alongside the positive productivity enhancing effect, human capital is assumed to increase the efficiency of corrupt bureaucrats in embezzlement. If the latter dominates the former, the incentive for bureaucrats to acquire education rises. The net effect may result in an insignificant (or even negative) effect of human capital on growth. Our main results are as follows: (1) corruption is always bad for economic development, but its effect is worse in the ec...
In this paper, we examine the growth effects of government expenditure for a panel of 30 developi... more In this paper, we examine the growth effects of government expenditure for a panel of 30 developing countries over the 1970s and 1980s, with a particular focus on disaggregated government expenditures. Our meth-odology improves on previous research on this topic by explicitly recog-nizing the role of the government budget constraint and the possible biases arising from omitted variables. Our primary results are twofold. First, the share of government capital expenditure in GDP is positively and significantly correlated with economic growth, but current expendi-ture is insignificant. Second, at the disaggregated level, government investment in education and total expenditures in education are the only outlays that are significantly associated with growth once the budget constraint and omitted variables are taken into consideration. 1
This paper presents an analysis of the joint determination of bu-reaucratic corruption and econom... more This paper presents an analysis of the joint determination of bu-reaucratic corruption and economic development. The analysis is based on a simple neo-classical growth model in which bureaucrats are employed as agents of the government to collect taxes from house-holds. Corruption is reflected in bribery and tax evasion as bureau-crats conspire with households in providing false information to the government. Costly concealment of this activity leads to a loss of re-sources available for productive investments. The incentive for a bu-reaucrat to accept a bribe depends on economy-wide outcomes which, in turn, depend on the number of other bureaucrats who accept bribes. We establish the existence of multiple development regimes, together with the possibility of multiple, frequency-dependent equilibria. The predictions of our analysis accord strongly with recent empirical evi-dence.
We investigate the empirical relationship between decentralisation and corruption. Using a newly ... more We investigate the empirical relationship between decentralisation and corruption. Using a newly assembled dataset containing data for up to 174 countries, we revisit the empirical evidence and seek to explain the incon-sistent results that exist in the relevant literature. We find that not only results differ due to the use of different specifications and data but more im-portantly because previous research overlooks the relationship between dif-ferent dimensions of decentralisation. We propose an approach where more than one dimension of decentralisation enter the econometric model simul-taneously. In this context, we analyze the existence of direct and indirect effects of these aspects on corruption. Our results suggest that both fiscal decentralisation and constitutional centralization (unitarism) are simulta-neously associated to lower corruption. Furthermore, we find that certain forms of political decentralisation (local elections) worsen the positive ef-fect of constitutiona...
This paper investigates the relationship between public investment in transportation and communic... more This paper investigates the relationship between public investment in transportation and communication and economic growth using traditional instrumental estimation and a mixed fixed and random coefficient approach in the context of a dynamic panel frame-work. We find that there is a dynamic effect of public investment in transportation and communication on economic growth and its impact is positive. In comparison with earlier studies, our estimated coefficients are somewhat lower. However, for the re-verse causal relationship proposed by the investment acceleration hypothesis, we find that there is significant heterogeneity across countries and our empirical study does not support the presence of reverse causality. Key Words: Causality, Dynamic panel, Public investment in transport and commu-
Emran Haque and Richard Kneller both wish to thank the Leverhulme Trust (programme grant F114/BF)... more Emran Haque and Richard Kneller both wish to thank the Leverhulme Trust (programme grant F114/BF) for financial support. Corruption Clubs:
This paper studies the relationship between corruption and decentralisation from a macroeconomic ... more This paper studies the relationship between corruption and decentralisation from a macroeconomic perspective. Providing a macroeconomic analysis may help to understand better the links and channels between corruption, decentralisation and economic development. The analysis presented in this paper is unique in that provides an explicit formulation of the relationship between corruption, decentralisation and economic development. We bring together the theoretical and empirical predictions of both the traditional and modern fiscal federalism theories and find that the effect of decentralisation on development depends crucially on the existence and extent of corruption. Without corruption, decentralisation is unambiguously the best outcome for development. However, if corruption is pervasive, decentralisation may be associated to lower capital accumulation than centralisation. This result is more likely to be observed in developing countries with weak local political institutions and si...
This paper presents a dynamic general equilibrium analysis of public sector corruption and econom... more This paper presents a dynamic general equilibrium analysis of public sector corruption and economic growth. In an economy with government intervention and capital accumulation, state-appointed bureaucrats are charged with the responsibility for procuring public goods which contribute to productive efficiency. Corruption arises because of an opportunity for bureaucrats to appropriate public funds by misinforming the government about the cost and quality of public goods provision. The incentive for each bureaucrat to do this depends on economy-wide outcomes which, in turn, depend on the behaviour of all bureaucrats. We establish the existence of multiple development regimes, together with the possibility of multiple, frequency-dependent equilibria. The predictions of our analysis accord strongly with recent empirical evidence on the causes and consequences of corruption in public office. 1
Economic development and bureaucratic corruption are determined jointly in a dynamic general equi... more Economic development and bureaucratic corruption are determined jointly in a dynamic general equilibrium model of growth, bribery and tax evasion. Corruption arises from the incentives of public and private agents to conspire in the concealment of information from the government. These incentives depend on aggregate economic activity which, in turn, depends on the incidence of corruption. The model produces multiple development regimes, transition between which may or may not occur. In accordance with recent empirical evidence, the relationship between corruption and development is predicted to be negative. 1
We consider final goods producers’ preference for horizontal product differentiation in the prese... more We consider final goods producers’ preference for horizontal product differentiation in the presence of strategic input price determination. Final goods producers may not prefer maximal differentiation but may prefer moderate differentiation under both Cournot and Bertrand competition in the final goods market if product differentiation does not increase the market size significantly and there is either free entry in the input market or the input supplier has increasing returns to scale technology. Thus, we provide a new rationale for moderate product differentiation. Our reasons are different from the existing reasons of mixed pricing strategy, endogenous leadership, no-buy option for the consumers and the relative performance incentive schemes.
This paper tests the proposition that fiscal transparency, measured by a newly constructed data o... more This paper tests the proposition that fiscal transparency, measured by a newly constructed data on budget openness, can be a powerful control on corruption. This result is robust to the choice of index of corruption, conditioning variables, country sample, exclusion of outliers, and the use of different instrumentation and estimation techniques.
International Political Economy: Investment & Finance eJournal, 2017
Although empirical evidence shows that a lower trade cost and higher FDI may go hand in hand, the... more Although empirical evidence shows that a lower trade cost and higher FDI may go hand in hand, the well-known “proximity-concentration” hypothesis does not support this view. We provide a simple explanation for this phenomenon. We show that a lower trade cost on the intermediate goods (with or without a trade cost reduction on the final goods) increases the incentive for FDI in the final goods market. In this respect, we show the roles played by the production technologies of the firms.
In this paper, we examine the growth effects of public investment in the presence of corruption. ... more In this paper, we examine the growth effects of public investment in the presence of corruption. Our methodology improves on previous research on this topic by explicitly recognizing the role of simultaneity between public investment, corruption and growth and the possible biases arising from omission of correlated variables from the single reduced form equation based analysis. We use three-stage least squares method in a panel set up for a system of four equations on growth, public investment, corruption and private investment. Our primary results are twofold. First, corruption increases public investment. Second, corruption reduces the returns to public investment and makes it ineffective in raising economic growth.
Page 1. PANOECONOMICUS, 2009, 3, pp. 327-357 UDC 330.35.055.2 DOI: 10.2298/ PAN0903327Y ORIGINAL ... more Page 1. PANOECONOMICUS, 2009, 3, pp. 327-357 UDC 330.35.055.2 DOI: 10.2298/ PAN0903327Y ORIGINAL SCIENTIFIC PAPER Développement financier et croissance économique : Rôle de la qualité des institutions * Abdelkarim Yahyaoui ♣ et Atef Rahmani ♦ ...
We consider final goods producers' preference for horizontal product differentiation in the p... more We consider final goods producers' preference for horizontal product differentiation in the presence of strategic input price determination. Final goods producers may not prefer maximal differentiation but may prefer moderate differentiation under both Cournot and Bertrand competition in the final goods market if product differentiation does not increase the market size significantly and there is either free entry in the input market or the input supplier has increasing returns to scale technology. Thus, we provide a new rationale for moderate product differentiation. Our reasons are different from the existing reasons of mixed pricing strategy, endogenous leadership, no-buy option for the consumers and the relative performance incentive schemes.
Economic and rent-seeking outcomes are determined jointly in a dynamic general equilibrium model ... more Economic and rent-seeking outcomes are determined jointly in a dynamic general equilibrium model of corruption, public spending and growth. In an economy with government intervention and capital accumulation, state-appointed bureaucrats are responsible for providing public goods, which contribute to productive efficiency. Corruption arises because of an opportunity for bureaucrats to appropriate public funds with an endogenous probability of being detected and punished. Given this probability, which depends on aggregate outcomes, each agent maximises her expected lifetime utility by choosing consumption and savings. The model produces multiple development regimes, which yield different predictions about detection of corruption, public spending and investment depending on initial conditions. These predictions accord strongly with the empirical evidence on corruption and development. JEL classification: D73, H41, K42, O11, O17
This paper provides an explanation for recent empirical evidence on the heterogeneous effects of ... more This paper provides an explanation for recent empirical evidence on the heterogeneous effects of human capital on economic growth in developing countries. In a two-period overlapping generations economy with physical and capital accumulation, state-appointed bureaucrats are responsible for procuring productive public goods. Corruption arises because of an opportunity for bureaucrats to misappropriate public funds. The decision of the corruptible bureaucrat affects public finances and hence the capital accumulation in the economy. Alongside the positive productivity enhancing effect, human capital is assumed to increase the efficiency of corrupt bureaucrats in embezzlement. If the latter dominates the former, the incentive for bureaucrats to acquire education rises. The net effect may result in an insignificant (or even negative) effect of human capital on growth. Our main results are as follows: (1) corruption is always bad for economic development, but its effect is worse in the ec...
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