Investigating the Corruption and Economic Growth Debate in the Context of Institutional Regulatory Quality. New Evidence from South American Countries.

Abstract

This research paper empirically investigates the relationship between corruption and economic growth in South American countries, when introducing institutional regulatory quality in the relationship, as a moderator. With the use of a dynamic panel data model on a sample of 12 countries, within the period of 2012 to 2021, this paper finds that higher levels of perceived corruption tend to be prejudicial to economic growth, while better institutional regulatory quality positively impacts economic development. In addition, this paper adds a new level of insight to the “sand the wheels” perspective, providing new empirical evidence which shows that corruption is detrimental to economic growth, however, the negative impact is softened when regulatory quality is introduced as a moderator in the relationship, meaning that corruption is less detrimental to economic growth when a country presents higher levels of perceived regulatory quality, in terms of the government’s ability to formulate and implement regulations that promote private sector development. Policy implications of these findings are then developed.