Is corruption useful in a context of weak democracy? Revisiting the relationship between financial development and economic growth in sub-Saharan Africa

Abstract

The purpose of this study is to examine the role of corruption in a context of weak democracy on the relationship between financial development and growth. Using data from 28 sub-Saharan African countries covering the period from 1990 to 2017, we implemented two estimation methods: the smooth transition regression method for the static panel and the generalised method of moments for the dynamic panel model. The results of our estimations mainly validated the asymmetric moderating effect of democracy and corruption on the impact of financial development on economic growth. We demonstrated that financial development has a significant and positive effect on growth when the level of democracy increases. At the same time, financial development has a significant and positive effect on growth when the level of corruption increases. These results confirm the ''grease the wheels'' hypothesis in a context of weak democracy. Although our results show that corruption greases the wheels of growth in the short term, in the long term it can be detrimental to the economy. We therefore recommend that political decision-makers promote democracy and take the necessary measures to reduce corruption.

Keywords

• Financial development
• Economic growth
• Democracy
• Corruption
• Sub-Saharan Africa