An investigation of the determinants and effects of corruption on economic growth in Sub-Saharan Africa (2005-2013)

Abstract

This study investigates and compares causes and effects of corruption on growth for Sub-Saharan Africa (SSA) at aggregate and disaggregated levels. The theoretical and empirical debate on corruption and economic growth nexus is a contestable issue given that available literature suggests a ‘greasing-the-wheels’ and ‘sanding-the-wheels’ effect of corruption on growth. This study endeavours to provide an understanding of macro causes and effects of corruption in SSA from a micro perspective, since regional analysis has scant literature. Regions are defined according Regional Economic Communities (RECs) and a total of five, covering SSA, are included for the period of analysis 2005-2013. Using panel data methodologies and taking two year average observations (together with fixed effects model) to deal with endogeneity problem, the study finds that the ‘sanding-the-wheels’ effect is prevalent in SSA. The impact is found more severe in ECOWAS and IGAD regions than SADC, ECCAS and EAC. Corruption effect on growth is, therefore, found to be increasing in severity as we move from the micro to macro perspective. A time lag in the effect of corruption on growth through the transmission channels possibly explain why some regions show less impact of corruption than others. SADC region shows a positive sign and this points to a ‘greasing-the-wheels’ effect, though the effect is insignificant. The causes of corruption increases as we move from macro to micro level analysis in SSA and these include mainly economic and governance factors. The study supports the view that corruption retards growth and is caused by a variety of factors, hence requiring a holistic approach to combat and prevent the challenge in SSA. Corruption antidotes which are often proffered takes a blind eye on the fact that corruption is an incentive problem, hence the study’s recommendation that the ‘motive of corruption’ rather than the ‘act’ of corruption should be addressed first. This however, does not mean discounting previous efforts but a challenge to the priorities of policy action in preventing corruption.