Saturday, 7 October 2017: 5:05 PM
While there is a large volume of literature which examines the relationship between corruption and growth and human capital and growth, there is a surprising absence of literature which examines the relationship between human capital, corruption and growth. Hence, this study focuses on corruption as one of the absorbing factors that could adversely affect a country’s level of human development, and therefore growth. The relationship between human capital, corruption and growth is examined using the standard model of economic growth where the average rate of income per capita growth is dependent on various macroeconomic and institutional factors such as investment ratio, population growth, human capital, trade openness, democracy and corruption. However, for the purpose of the study, we have added corruption, human capital and their interaction term as additional explanatory variables. Furthermore, in order to investigate the relationship between human capital and growth in the presence of corruption, the marginal effect analysis using the interaction term between corruption and human capital has been employed in a panel data framework for 127 countries over the period 1984 to 2012. The International Country Risk Guide (ICRG) corruption index and Transparency International’s (TI) corruption perception index are used to measure corruption and as a benchmark measure, secondary enrollment as a percentage of net enrollment is used as a proxy for human capital. In addition, the index of human capital per person, based on years of schooling and returns to education is used as a second measure. Two different estimation methods, system general method of moments and two stage least squares are used to test our hypothesis based on two different measures of corruption and human capital. Our results suggest that as the level of education rises, it leads to growth in less corrupt countries, however, a higher level of education does not foster growth in more corrupt countries.
Keywords: Corruption, Economic Development, Regional and Country Studies