Case study

CORRUPTION,PUBLIC
INVESTMENT AND GROWTH
BY:Nidhi Verma
Nikita Johari

SUMMARY
Point out the effect of corruption on the
economy and the growth of the country.
Then discuss reasons why we assume the
public investment is particularly sensitive to
the existence of corruption.
Hypotheses testing
Draw conclusion

EXISTENCE OF CORRUPTION

Capital spending is more support by politicians

rather then current spending
Corrupt high level official steer the approval of
investment project towards particular domestic
or foreign enterprises in exchange for bribes
Political personalities steer public investment
towards their own land
Project are chosen exclusively for their bribegenerating capacity and not for their productivity

EFFECT OF CORRUPTION
Reduce the rate of return of new public
investment and also the rate of return
country is getting from the existing
infrastructure

Do the Empirical analysis

Data is collected from various sources like
Corruption data from
Business international and political risk services
and ICRG
Capital expenditure data from
the IMFs GFS

Then tested hypotheses about the

relationship between corruption on one hand
and public investment, government revenue,
O&M expenditure and quality of
infrastructure on the other.

CONCLUSION
Corruption can reduces economic growth by
increasing public investment while reducing
Its productivity,
In adequate O&M expenditure,
Quality of the existing infrastructure,
Lowering government revenue needed to finance
productive spending.

TYPE OF DATA
Pooled data has been used of various countries
from 1980-95.

METHOD USED TO EVALUATE

CORRUPTION

Corruption is evaluated on the basis of

relationship between government spending and
growth.

Measurement and introduction of variable

Different variables used are:
Corruption index
Real per capita GDP
Government revenue -GDP ratio
As independent variable

Public investment
Government revenues
O &m expenditure
Quality of public investment
As dependent variable

All these dependent variables have been

measured in terms of their relationship with
corruption.

HYPOTHESIS TESTED IN
THE PAPER
1. High corruption is associated with high
public
investment.
2. High corruption is associated with low
government revenue.
3. High corruption is associated with low O&M
expenditure.
4. High corruption is associated with poor
quality of infrastructure.

Single, Multiple Or Stepwise Regression?

All the three i.e. , single, multiple and

stepwise
Regression.

RESULTS OF DIFFERENT
HYPOTHESIS TESTED
1. Accepted the hypothesis at 1% significance
level suggesting that corruption is highly
associated with the public investment.
2. Accepted the hypothesis at 1% significance
level suggesting that corruption is highly
associated with the low government revenue.

3. Accepted the hypothesis at 1% significance

level suggesting that corruption is highly associated
with the low O&M expenditure i.e., corruption may
result in low O&M expenditure.

4. Accepted the hypothesis at 1% significance level

suggesting that corruption is highly associated with
the poor quality of infrastructure .
Corruption has strongest impact on the quality of
roads, power outages and railway diesel in use.

FINAL CONCLUSION
1. Corruption can reduce growth by increasing public
investment while reducing its productivity.
2. Corruption can reduce growth by increasing public
investment that is not accompanied by its recurrent
current expenditure .i.e., adequate non wages O&M
expenditure.
3. Corruption can reduce growth by reducing the quality of
existing infrastructure.
4. Corruption can reduce growth by lowering government
revenues needed to finance productive spending.

DUMMY VARIABLES USED?

No dummy variables used

ANOVA OR ANCOVA?
ANOVA :-

Adjusted R square and t-test

VARIABLE USED BY AUTHOR FOR GROWTH

AND CORRUPTION IN ECONOMY

Government spending both capital and current

expenditure.