Title

Corruption, education, and growth

Date of Completion

January 2008

Keywords

Economics, General

Degree

Ph.D.

Abstract

A large number of studies have emerged on the economics of corruption since the seminal work of Leff (1964) over 40 years ago. Since his work, we have seen advances in how corruption is measured, modeled, and empirically related to plethora of economic phenomena. This dissertation seeks to advance the literature on corruption in two main ways. First, we show how a commonly used method in the empirical literature on corruption has potentially misled researchers and policy makers over the last decade. Using recent developments in econometrics, we highlight the severity of the problem while showing empirical researchers the way forward. Another way we contribute to the literature on corruption is by introducing a previously unknown problem that is educational corruption. We first show how corruption in education is determined using a unique data set and offer policies that might serve to reduce its presence in educational institutions. Finally, we show how educational corruption alters educational choice and thus the allocation of talent which has effects on the education wage premium and economic growth. ^ The goal of the first chapter is to revisit the influential work of Mauro (1995) focusing on the strength of his results under weak identification. He finds a negative impact of corruption on investment and economic growth that appears to be robust to endogeneity when using two-stage least squares (2SLS). Since the inception of Mauro (1995), much literature has focused on 2SLS methods revealing the dangers of estimation and thus "traditional" types of inference under weak identification. We reproduce the original results of Mauro (1995) with a high level of confidence and show that the instrument used in the original work is in fact "weak" as defined by Staiger and Stock (1997). Thus we update the analysis using a test statistic robust to weak instruments. Our results suggest that under Mauro's original model there is a high probability that the parameters of interest are locally almost unidentified in multivariate specifications. To address this problem, we also investigate other instruments commonly used in the corruption literature and obtain similar results. After identifying an instrument with sufficient strength we fail to reject a zero effect of corruption on investment and economic growth. ^ The second chapter utilizes a unique data set to examine educational corruption of various types including bribing on exams and term papers as well bribing to obtain credits and bribing to enter institutions. The data were gathered from 1588 students attending educational institutions throughout Ukraine. The paper attempts to identify the determinants of bribery and corruption perceptions across various institutions and cities throughout Ukraine. The results reinforce the importance of corruption perceptions and the relationship they have with actual bribing behavior. The paper concludes that women tend to have a higher probability of bribing on exams and for entrance after controlling for job market perceptions. Bribing during secondary school is also a strong predictor of bribing at tertiary school across three of the four types of bribes. ^ In the final chapter we formulate a macroeconomic model to explore the impact educational corruption may have on growth, educational attainment, and the education wage premium. We find that our model can produce a negative relationship between economic growth and educational corruption as well as a positive relationship between the education wage premium and educational corruption. We find empirical support for these relationships in a cross-section of countries. In addition to this fact, our model also produces a negative relationship between the level of educational attainment and educational corruption as found in the data. To add to a recent line of literature on social status and its implications for growth, we show that attaching status to education can be growth enhancing in countries that experience low to medium levels of educational corruption but growth reducing in countries that experience high levels of educational corruption. We also show that borrowing constraints can exacerbate the impact educational corruption has on economic growth, the wage premium, and educational attainment rates. ^