Corruption and Economic Growth in East African Countries: Greasing or Sanding the Wheel?
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This paper attempts to add to the existing discourse by analyzing the relationship between corruption and economic growth in six East African countries, using seven of the ten indicators from the economic freedom that the Heritage Foundation has designed to measure economic freedom of countries. The seven variables used in the empirical analysis are freedom from corruption,fiscal freedom, government spending, business freedom, monetary freedom,trade freedom, and investment freedom. The result shows that the presence of corruption has a relationship with economic growth. However, the dimension of this relationship is dependent on other factors. First, it is found that the seven indicators have a correlation with corruption and are reduced to three variables of fiscal freedom, market stability and government spending using the factor analysis dimension reduction statistical methodology. While each indicator is valuable to show the economic freedom of a country, improving one will result in improving the other as well. Second, the regression analysis found that while fiscal freedom has a positive relationship, market stability showed a negative relationship with economic growth. Government spending showed an insignificant relationship. This analysis, however, is limited in its scope as it did not include other factors that can play a role in shifting the impact of corruption on growth.
Abstract
This paper attempts to add to the existing discourse by analyzing the relationship between corruption and economic growth in six East African countries, using seven of the ten indicators from the economic freedom that the Heritage Foundation has designed to measure economic freedom of countries. The seven variables used in the empirical analysis are freedom from corruption,fiscal freedom, government spending, business freedom, monetary freedom,trade freedom, and investment freedom. The result shows that the presence of corruption has a relationship with economic growth. However, the dimension of this relationship is dependent on other factors. First, it is found that the seven indicators have a correlation with corruption and are reduced to three variables of fiscal freedom, market stability and government spending using the factor analysis dimension reduction statistical methodology. While each indicator is valuable to show the economic freedom of a country, improving one will result in improving the other as well. Second, the regression analysis found that while fiscal freedom has a positive relationship, market stability showed a negative relationship with economic growth. Government spending showed an insignificant relationship. This analysis, however, is limited in its scope as it did not include other factors that can play a role in shifting the impact of corruption on growth.
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