Corruption, Financial Development and Economic Growth: Theory and Evidence From an Instrumental Variable Approach With Human Genetic Diversity

Abstract

Because the predicted human genetic diversity created by Ashraf and Galor (2013a; American Economic Review 103: 1–46) can be considered strictly exogenous in cross‐country growth regressions, we use it and its square as instrumental variables for corruption to investigate its impact on economic growth. Our empirical finding is that corruption has both a direct, negative impact on economic growth and an indirect, negative impact through financial development. Moreover, our evidence suggests that human genetic diversity is an origin of corruption, with a significant U‐shaped effect on corruption: when human traits are more homogeneous or more heterogeneous, corruption occurs more frequently, and when the diversity of human traits is at an intermediate level, corruption occurs less frequently. Our theoretical framework demonstrates the endogeneity problem associated with corruption, clarifying causality from financial development to corruption, and it supports empirical specifications, clarifying the channels through which corruption negatively affects economic growth.

Do National Differences in Social Capital and Corporate Ethical Behaviour Perceptions Influence the Use of Collateral? Cross-Country Evidence

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Inflation and innovation value: How inflation affects innovation and the value strategy across firms

“…An important advantage of the available database consists of a wide time period from 1984 to the present, which allows a better control on the forecast measures and adequacy of variables (Charron, 2011). Given the importance of the quality of risk measures, recent studies have applied the basis of risk analysis at the macroeconomic level (Osabutey & Okoro, 2015;Stockemer, 2013;Kunieda, Okada, & Shibata, 2016;Myles & Yousefi, 2015;Beal & Graham, 2014).…”

Examining the Financial Development–Economic Growth Nexus from an Institutional Approach: Evidence from Non-Oil Arab Countries

“…Consequently, these factors can help to implement policies targeting institutional reforms which are needed to promote growth-enhancing financial systems (Berhane, 2018;Blackburn & Forgues-Puccio, 2010;Casson, Giusta, & Kambhampati, 2010;Kaidi, Mensi, & Amor, 2019;Khan, Khan, Abdulahi, Liaqat, & Shah, 2019). Kunieda, Okada, & Shibata (2016). Other works, such as Keefer & Knack (1997) and Aghion, Howitt, & Mayer-Foulkes (2005), revealed that the misfunctioning of financial systems is due to corruption.…”