Saturday, 19 October 2019: 9:40 AM
Corruption has been a roadblock to economic development in many developing countries around the world including Latin American countries. Most Latin American countries suffer from a deep-seated, pervasive problem of corruption. According to a 2017 report from Transparency International, corruption is on the rise in Latin American and Caribbean countries. In recent years, the Petrobras and the Odebrecht scandals, probably the largest one uncovered in history have exposed a cobweb of corruption that encompassed not only more than a third of the Latin American countries but promulgated across the globe. The primary aim of this research is to empirically examine if and how the level of corruption affects economic growth and development in Latin American countries which account for roughly 7% of the world’s gross domestic product (GDP). Our central hypothesis is that corruption does have a negative impact on a country’s economic growth and development. Our analysis is conducted using data collected from the World Bank, Transparency International and United Nations database with information on seven Latin American countries between 1995 and 2015. The dependent variable in this analysis is real GDP per capita. Independent variables include the corruption perception index, Gini coefficient, gross capital formation and expenditure on education. We further investigate the connection between corruption and the level of development by estimating models with the Human Development Index as a measure for level of development in a country. We use reduced form nonlinear and fixed effect models for our analysis. The results support our central hypothesis that an increase in the level of corruption significantly lowers GDP per capita as well as Human Development Index (HDI). Additionally, preliminary findings also suggest that increase in education expenditure enhances economic growth while high income inequality is associated with lower level of growth.