Investingating the Relationship Among Corruption, Poverty and Economic Growth – Nigerian Perspective

Topics: Causality, Poverty, Political corruption Pages: 15 (4462 words) Published: January 22, 2013

ABSTRACT A plethora of empirical studies attempted investigating the causal relationship between corruption and poverty. But the outcome of those studies produced mixed results in a regression model that captured only two variables. In this investigated bivariate model, economic growth as an important variable was not included. In fact, omitting such an important variable could seriously affect the research output. Therefore, the objective of this study is to fill the research gap by investigating the trivariate causality for Nigerian economy by incorporating economic growth as a third variable in the existing corruption and poverty bivariate model. The results of this study indicated that there is an existence of co-integration among the variables under investigation - characterizing a long run causality relationship among corruption, economic growth and poverty in Nigeria. The results of the dynamic economic growth model indicate the degree of growth influence linkage on corruption. The findings are suggesting that policies that enhance economic growth are expected to be precise in reducing corruption and poverty in Nigeria. Therefore, the government needs to give importance on the development of critical sectors that are growth enhancing. K EY WORD: Economic growth, poverty, corruption, co-integration, causality. 1.0 INTRODUCTION The Empirical studies that examined the causal relationship between corruption and poverty using bivariate granger causality frame works (such as Gupta et al., 2002; Negin, Abd Rashid, & Nikopour, 2010; Gyimah-Brempong, 2006; You and Khagram, 2004) have produced mixed results. The study of Negin, et al. (2010) suggested that there is a significant relationship between corruption and poverty, without including economic growth as the channel of transmission between corruption and poverty. Meanwhile, Gupta et al. (2002) found significant relationship between corruption and poverty using sample of African countries. Arora (2009) provided evidence for reverse causality in their finding where they reached a conclusion that the imbalance between the poor and the rich make the poor weaker and incapable to monitor the rich. Aliyu and Elijah (2008) asserted that corruption and economic growth are cointegrated in Nigeria. But, their study failed to integrate the poverty variable into their regression analysis in order to determine the simultaneity of influence. Apart from methodological problems, these approaches have suffered from a limited number of observations and excluded relevant variables which may have a significant relationship with the two variables being considered which is the economic growth variable. 1

The study of Demery and squire (1996) is one of the early studies that used trivariate model but his study focused on inequality economic growth and poverty, and the authors found that inequality is inversely related to poverty implying that inequality affect poverty through mean income. This highlights the needs of including economic growth as a third variable in the relationship between corruption and poverty. Another approach that tried to establish the importance of economic growth variable even though his study uses bivariate model was the work Lambsdorff (2007). This study integrated the ratios of GDP to capital stock and proxy this ratio of GDP to capital stock as macroeconomic measure of the average capital productivity. The result indicated that there was an existence of significant negative impact of corruption towards this ratio. In fact, it is evident that the role of economic growth in corruption and poverty relationship has been neglected in corruption poverty literatures (e.g. Bardhan, 2006; Mauro, 1995; Knack and Keefer, 1997; Tanzi and Davoodi, 1997). Moreover, majority of these studies are based on cross section data which cannot capture country specific issues. This...
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