M. Emranul Haque

Public Expenditure and Economic Growth: A Disaggregated Analysis for Developing Countries

In this paper, we examine the growth effects of government expenditure for a panel of 30 developing countries over the 1970s and 1980s, with a particular focus on disaggregated government expenditures. Our methodology improves on previous research on this topic by explicitly recognizing the role of the government budget constraint and the possible biases arising from omitted variables. Our primary results are twofold. First, the share of government capital expenditure in GDP is positively and significantly correlated with economic growth, but current expenditure is insignificant. Second, at the disaggregated level, government investment in education and total expenditures in education are the only outlays that are significantly associated with growth once the budget constraint and omitted variables are taken into consideration.

Endogenous Corruption in Economic Development

This paper presents an analysis of the joint determination of bureaucratic corruption and economic development. The analysis is based on a simple neo-classical growth model in which bureaucrats are employed as agents of the government to collect taxes from households. Corruption is reflected in bribery and tax evasion as bureaucrats conspire with households to provide false information to the government. Costly concealment of this activity leads to a loss of resources available for productive investments. The incentive for an individual bureaucrat to accept a bribe depends on the number of other bureaucrats who are expected to accept bribes. This strategic interaction in bureaucratic decision making produces multiple (frequency-dependent) equilibria associated with different incidences of corruption. The predictions of the model accord strongly with recent empirical evidence.

Causality Between Public Investment in Transport and Communication and Economic Growth

This paper aims to provide an explanation for the robust and consistent relationship between public investment in transport and communication and economic growth that has frequently surfaced in recent empirical studies. Using both informal and formal causality tests, the paper finds that, for a set of developing countries, the strong association is the result of the effect running from growth to public investment rather than vice versa.

Federalism, Decentralisation and Corruption

We investigate the empirical relationship between decentralisation and corruption. Using a newly assembled dataset containing data for up to 174 countries, we revisit the empirical evidence and seek to explain some of the inconsistent results that exist in the literature. We find that not only results differ due to the use of different specifications and data but more importantly because previous research overlooks the relationship between different dimensions of decentralisation. We propose an approach aimed at exploring the aggregate effect of decentralization on corruption. In this context, we analyze the existence of direct and indirect effects of these aspects on corruption. Our results suggest that fiscal (market) decentralisation is associated with lower corruption. However, we also find that constitutional decentralisation (federalism) is associated with higher corruption. Furthermore, we find that certain forms of political decentralisation worsen the positive effect of constitutional centralization on corruption. Finally, other forms of decentralisation such as spatial decentralisation do not appear to have a strong association with corruption. Our results suggest the possibility that previous empirical work may grossly overestimate de aggregate impact of decentralization and corruption.

Financial Development and Economic Growth: The Role of Financial Liberalization

This paper argues that excessive liberalisation causes financial development to lose its effectiveness in generating economic growth. We investigate the hypothesis through a dynamic panel analysis for 88 countries for the period of 1973 - 2005 using a comprehensive financial development indicator constructed through principal component analysis of five different indicators used in the literature. For financial liberalisation, we use an aggregate index and its seven disaggregated components. The results indicate that the positive effect of financial development on long-run growth continues to decline as the financial sector becomes more liberalised. Our results are robust to changes in the financial development indicators and the disaggregation of the financial liberalisation index.

Corruption and Development: A Test for Non-linearities

Using different combinations of culture, development and openness to international trade, we test the variability in the incidences of corruption at different stages of development or in other words the non-linearities in the relationship between corruption and development. We employ formal threshold model developed by Hansen (2000), and unlike the existing literature, we find that: (1) non-linear models that search for the break points in the relationship between corruption and development are statistically preferable than linear regressions; (2) the effect of development at any stage is much lower than that has been suggested by studies using linear regressions approach; (3) both culture and openness do not affect corruption directly; rather they have an effect on the location of break points in the relationship between corruption and development.

Free Entry and Government Revenue Under Trade Liberalization

We examine whether the market under free entry with a certain entry cost can recover the revenue loss following tariff reduction on an intermediate input. We show that there are four possible ranges of entry cost, from high to low, with four different revenue implications following a reduction in tariff: (i) both tariff revenue and profit tax revenue increase without raising the rate of profit tax; (ii) tariff revenue declines but total revenue increases as the increase in profit tax revenue dominates the reduction in tariff revenue; (iii) revenue loss can be compensated by increasing the rate of profit tax; (iv) compensation is not possible with a non-distortionary profit tax.

Is the Growth Effect of Financial Development Conditional on Technological Innovation

This paper argues that excessive financial development in combination with high levels of technological innovation or RD rather, it is conditional upon the level of R&D. Further, we find that a high level of R&D is associated with a weak or negative effect of financial development on economic growth.

Public Expenditures, Bureaucratic Corruption, and Development

This paper presents a dynamic general equilibrium analysis of public sector corruption and economic growth. In an economy with government intervention and capital accumulation, state-appointed bureaucrats are charged with the responsibility for procuring public goods which contribute to productive efficiency. Corruption arises because of an opportunity for bureaucrats to appropriate public funds by misinforming the government about the cost and quality of public goods provision. The incentive for each bureaucrat to do this depends on economy-wide outcomes which, in turn, depend on the behaviour of all bureaucrats. We establish the existence of multiple development regimes, together with the possibility of multiple, frequency-dependent equilibria. The predictions of our analysis accord strongly with recent empirical evidence on the causes and consequences of corruption in public office.

PUBLIC EXPENDITURES, BUREAUCRATIC CORRUPTION AND ECONOMIC DEVELOPMENT*: Public Expenditures, Corruption and Development

This paper presents a dynamic general equilibrium analysis of public sector corruption and economic growth. In an economy with government intervention and capital accumulation, state-appointed bureaucrats are charged with the responsibility for procuring public goods which contribute to productive efficiency. Corruption arises because of an opportunity for bureaucrats to appropriate public funds by misinforming the government about the cost and quality of public goods provision. The incentive for each bureaucrat to do this depends on economy-wide outcomes which, in turn, depend on the behaviour of all bureaucrats. We establish the existence of multiple development regimes, together with the possibility of multiple, frequency-dependent equilibria. The predictions of our analysis accord strongly with recent empirical evidence on the causes and consequences of corruption in public office.