In this study, the effect of corruption on economic growth is evaluated by considering econometric analysis of panel models. The data sets in this study are obtained from Transparency International Organization, World Bank Data and Penn World Table for a sample of 38 developing countries between 2000 and 2008. The emphasis of this work will be on various transmission channels through which corruption affects economic growth. In alignment with these research objectives, the following research questions can be identified. What are the effects of corruption on economic growth? What are the effects of other explanatory variables (control variables) including openness (OPENK), the rate of investment (KI) and foreign direct investment (FDI) through corruption on economic growth? To answer these questions, this study introduces the impact of corruption on economic growth through direct and indirect methods.
The indirect effects of corruption on economic growth emphasizes on the role of transmission channels. The transmission channels in this study are the share of investment of GDP, foreign direct investment and openness through which economic growth is influenced by corruption. According to regression analysis, the direct effect of a 1% increase in the corruption leads to reduction of the growth rate by about 1.64%. In addition, the indirect effects of corruption on economic growth through KI, FDI and OPENK are negligible. The reason might be due to the lack of predictability of corruption (uncertainty) in these developing countries. This illustrates that growth is influenced by corruption directly and the transmission channels have no role on the effects of corruption on economic growth in this sample under investigation.