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Completed papers:
In progress:
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Institutional Structure of the Interbank Market Under a Currency
Board
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Commercial Bank Reserve Management in the Case of a Currency
Board
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Bank
Regulation in Practice and in Theory
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Internal Ratings-Based Approach
for Credit Risk in Transition Economies
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Human Capital and Educational
Corruption
(with Philip Shaw)
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Corruption and Growth Under Weak Identification
(with
Philip Shaw and
Marina-Selini
Katsaiti)
Abstract
The goal of this paper is to revisit the influential work of
Mauro
(1995) focusing on the strength of his results under weak
identification.
He finds a negative impact of corruption on investment and economic
growth that appears to be robust to endogeneity when using two-stage
least squares (2SLS). Since the inception of Mauro (1995), much
literature
has focused on 2SLS methods revealing the dangers of estimation
and thus “traditional” types of inference under weak identification.
We reproduce the original results of Mauro (1995) with a high level
of confidence and show that the instrument used in the original work
is in fact “weak” as defined by Staiger and Stock (1997). Thus we
update the analysis using a test statistic robust to weak
instruments.
Our results suggest that under Mauro’s original model there is a
high
probability that the parameters of interest are locally almost
unidentified
in multivariate specifications. To address this problem, we also
investigate other instruments commonly used in the corruption
literature
and obtain similar results. After identifying an instrument with
sufficient strength we fail to reject a zero effect of corruption on
investment
and economic growth.
JEL codes: C31, D73
Keywords: Corruption, Growth, Weak Identification, LAU |
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