Corruption, Government Expenditure and Economic Performance at a Sub‐Regional Level: Evidence From India

ABSTRACT GDP per capita is the prevailing measure commonly employed to assess economic growth in corruption‐related studies, this study highlights the limitations of such measures when examining the impact of corruption on economic performance at the sub‐regional level. Instead, productivity measures are employed to evaluate economic performance in this study. Using state‐level data from India, we examine the linkage between economic performance and corruption. The findings from the dynamic panel threshold model demonstrate that corruption has a growth‐enhancing effect on economic performance up to a specific threshold. Moreover, the influence of government spending on economic performance is also contingent on the corruption threshold. These findings emphasize the importance to combat corruption in order for states to achieve their full economic potential.