This article adds to the empirical literature on the relationship between corruption and economic growth by incorporating the impact of economic freedom. We utilize an econometric model with two improvements on the previous literature: (1) our model accounts for the fact that economic growth, corruption, and investment are jointly determined, and (2) we include economic freedom explicitly as an explanatory variable. Using a panel of 60 countries, we find that for countries with low economic freedom (where individuals have limited economic choices), corruption reduces economic growth. However, in countries with high economic freedom, corruption is found to increase economic growth. Our results contradict the generally accepted view that corruption lowers the rate of growth.
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