An analysis of the Impact of Political Regimes on the Economy: Understanding the Corruption-Growth Relationship

Corruption and economic growth are co- related. No theoretical evidence in the literature provides clear evidence of their relationship. Some researchers believe corruption increases economic growth while others say it negatively affects the economy. This paper aims to analyse the joint effect of corruption and the type of political government (i.e., democratic or autocratic) on economic growth to provide some clarity. Panel data (2000-2020) analysis of Pakistan and Saudi Arabia is used in this research paper to examine the relationship between corruption and the type of political government. GDP per capita is used as a dependent variable and economic factors are used as independent variables. A standard regression estimation approach is used. The relationship is estimated using econometric and statistical panel estimation techniques: FE, Two-stage least square and Dynamic-Panel-System GMM method. The data collected is from ICRG and WDI. The results show that corruption has a positive effect in autocratic systems than in democratic. Thus, it proves that the type of political government, corruption and economic growth are related.