Greasing or sanding the wheels? Effect of corruption on economic growth in sub-Saharan Africa

Corruption is a pervasive challenge confronting the world economy more especially countries in sub-Saharan Africa. This paper investigates the effect of corruption on economic growth in the sub-region using data spanning 1998 to 2011. By employing the pooled estimated generalised least squares (EGLS) and two stage least squares (2SLS), we find that corruption is inimical to economic growth through its indirect effect on gross fixed capital formation and labour force. The results are not only robust to controlling for endogeneity using regional blocs of the countries as instruments in the 2SLS estimations but identifies government expenditure as additional pass-through effect of corruption on growth. Our findings suggest that for countries within the sub-region to achieve sustained economic growth, control of corruption must take precedence over the design and implementation of any macroeconomic policy. Campaign against corruption does not only improve on institutional quality but is by far growth-enhancing.