ABSTRACT
Theoretical links between corruption and economic growth have been studied rather extensively and various explanations into the nature of this link have been offered. Shleifer and Vishny (1993), for example, argue that the weakness of central government, which would permit various competing government agencies to impose bribes on private agents, can be the cause of diminished investment. Also, the need for secrecy surrounding corruption may lead to distortions which may in turn discourage productive investment projects and therefore hamper economic growth. Ehrlich and Lui (1999) develop an endogenous growth model where investment in human capital generates growth. Individuals have an incentive to compete to become bureaucrats because bureaucracy has access to rent seeking through corruption. Such investment in political capital, which aims at bureaucratic power, is not productive and the interplay between human capital and political capital determines the path of economic growth.1
