Corruption, Governance, and Poverty in Sub-Saharan Africa: Panel Evidence
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Date
2011-06
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Addis Ababa University
Abstract
This paper examines the relationship between corruption and poverty as well as their causal links. The effects of governance on both corruption and poverty are also addressed in the study. Data for 23 sub-Saharan African countries over the years 2000 – 2009 are used in a dynamic panel model of System-Generalized Method Moment estimation. Results show that corruption significantly and positively affects poverty indicating increased corruption increases poverty and vice versa. Capability poverty measured by Human Poverty Index also affects corruption, showing the same sign of effect. The causal link between corruption and poverty is found to be bidirectional running both from corruption to poverty and from poverty to corruption. That is, current and past information on corruption helps to improve the prediction on poverty as well as current and past information on poverty helps to improve the prediction on corruption. Governance quality affects poverty where improved governance contributes to poverty reduction and poor governance increases poverty. Each of the governance indicators: voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, and rule of law are also found to affect corruption level when considered independently. It is, therefore, important to understand corruption-poverty nexus while developing and implementing development policies. Policies of combating corruption and alleviating poverty should be an integral component of the same strategy and not be treated separately
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Keywords
Corruption; Poverty; Governance Quality; Governance indicators