Abstract
On basis of the lubricating effect hypothesis of corruption (grease-the-wheels hypothesis), the impact of corruption on growth seems ambiguous. Therefore, the question that arises is to what extent corruption can be tolerated and at what threshold it has detrimental effect on an economy. This chapter investigates the impact of corruption on economic growth by testing the hypothesis that the relationship between these two variables is nonlinear, and we assess whether the belief that corruption has detrimental effects on the economy is always true. In this chapter, a panel data analysis has been used to examine 65 countries over the 1987–2021 period. Our findings are that corruption can have a positive effect on growth. The results indicate that beyond an optimal threshold, both high and low corruption levels can decrease economic growth. Under this optimal threshold, a moderate level of corruption, defined by the point of reversal of the curve of the marginal corruption effect on growth, could have advantages for economic growth.
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