Economic Growth And Corruption

Chapter 3: Methodology

There have been substantial literature and empirical analysis on economic growth and corruption. Many studies have used similar techniques (Meon and Sekkat, 2005). Corruption is often considered as the ‘grease’ or ‘sand’ the wheels. Growth rate is often associated with investment and some other economic variables to explain macroeconomic relationship. Many studies of modern literature such as Barro (1991), Mankiw et al. (1992), Meon and Sekkat

(2005) and many others used cross countrasy data analysis. However, panel study provides a number of advantages over time series and cross country data. Thus, panel data will be used for the analysis where 47 countries of the Sub Saharan Africa will be taken into consideration.

However, we will also have a look at how colonialism played a role in Sub Saharan Africa. In fact we will divide the countries with respect to their colonial power. The colonial power was mainly Britain, France, Portugal, Belgium and Spain. Generally quite the same economics variables are used by the authors (Meon and Sekkat, 2005). In this dissertation we will use

GDP per capita, investment, openness to trade and corruption. We will form a function for corruption by including the CPI, rule of law, government inefficiency index, and political instability index.

3.1 Panel econometrics

Panel data are a combination of both time series and cross section. Panel data are data for different entities and at different time period. It therefore provides multiple observations.

Hence it gives a number of advantages. Using large data sets for different entities at different time help in increasing the degree of freedom Moreover, it also useful as it reduces collinearity from variables. The basic regression ...

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...est in the economy to increase the human capital. Human capital can be increased in the economy throughout a rise in population growth and a better educated labour force. Therefore, investment in education will be very helpful for an economy to grow.

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Moreover if we stand on the endogenous model it is also important to increase technology over time. However, these are theories based and it become well it is supported by empirical evidence. In fact, from the first regression the coefficient (0.03) we obtained for investment is positive and significant. This proves the theoretical analysis as investment is positively related to growth rate. This means that higher investment will lead to higher growth rate. So, Sub

Saharan Africa must raise investment to expand their economy. The diagram below shows a positive link between log growth rate and log investment.

Graph 2