The corruption–growth relationship. Do political institutions matter?

Corruption is widely believed to negatively affect economic growth. However, many East and Southeast Asia countries either achieved or currently are achieving impressively rapid economic growth despite widespread corruption — the ‘East Asian Paradox’. Is this negative relationship equally likely to hold for autocracies and democracies? This paper examines the role of political institutions in mediating the corruption–growth relationship using panel data over one hundred countries for the period 1984–2016. We find clear evidence that corruption–growth relationship differs by the type of political institution, and the growth enhancing effect of corruption is more likely in autocracies than in democracies. The perceived credibility of long-term ruling political elites by promoting economic freedom to do business gives confidence to the firms, vital for investment and growth. Our findings provide suggestive evidence in support of the East Asian Paradox.