Corruption and economic growth: the role of country-level governance

Abstract This study examines the two-way relationship between corruption and country-level economic growth and assesses the role of country-level governance in shaping this interaction. Using panel data from 130 countries over the period 2010–2019, the analysis applies a three-stage least squares approach to account for mutual endogeneity among corruption, governance, and economic growth. The findings reveal that the direction and strength of these relationships vary systematically across levels of economic growth. In developed economies, lower corruption is associated with stronger growth through strengthening institutions and governance. In developing economies, corruption may temporarily enhance growth by easing rigid institutional constraints and bypassing inefficiencies; however, persistent corruption ultimately undermines growth through weakening governance. These results indicate that the corruption-growth relationship is highly context-dependent and depends on the strength of governance structures. Our findings offer valuable insights into balancing anti-corruption efforts with economic objectives, advancing our understanding of how governance shapes the corruption-growth relationship, and providing a foundation for more targeted economic and institutional reforms.