Corruption Control, Financial Development, and Growth Volatility: Cross-Country Evidence

Abstract

We examine the effect of corruption control on the volatility of economic growth using cross-country data that cover 131 economies worldwide for the period 1985–2018. To estimate the growth volatility model, we employ the system generalized method-of-moments estimator for dynamic panel data, which addresses potential endogeneity concerns using internal instruments. Our results show that corruption control significantly reduces growth volatility. This effect is robust to controlling for other measures of institutional quality. Moreover, we find some evidence for an indirect impact of corruption control on growth volatility through its role in reinforcing the volatility-dampening effect of financial development.