GOVERNANCE PARADIGM: EXPLORING THE NEXUS BETWEEN CORRUPTION AND ECONOMIC GROWTH IN DEMOCRATIC AND NON-DEMOCRATIC COUNTRIES

Abstract

Background: Developing nations need economic growth to improve living standards, reduce poverty, and achieve sustainable development. Corruption and military spending have many repercussions, but their cumulative effects, are less explored. This study examines how these factors affect economic growth in developing nations.

Purpose: This study explores the relationship between economic growth and key macroeconomic variables, including corruption, military expenditure, and social sector investments (health and education), in 50 developing countries.

Design/Methodology/Approach: Using a panel data framework, the study applies the Generalized Method of Moments (GMM) estimation technique to assess the impact of foreign direct investment (FDI), health expenditure, education expenditure, military expenditure, corruption, employment, and gross fixed capital formation (GFCF) on economic growth (GDP per capita).

Findings: The results indicate that FDI, health expenditure, education expenditure, employment, and capital formation significantly and positively influence economic growth. Conversely, military expenditure shows a negative effect on growth. Notably, corruption demonstrates a positive impact on economic growth, aligning with the "grease the wheels" hypothesis, suggesting that in contexts of weak institutions, corruption may enhance efficiency in certain economic activities.

Originality/Value: This study provides new insights into the complex role of corruption and military spending in the economic development of developing nations. The findings underscore the importance of balancing social sector investments and governance reforms to achieve sustainable growth.