The Causal Relationships Between Corruption, Investments and Economic Growth in GCC Countries

Abstract

This paper investigates the impact of corruption on economic growth and investments in the Gulf Cooperation Council countries over the period 2003 to 2016 using the panel vector error correction model and the panel fully modified ordinary least squares method developed by Pedroni. We find that there is at least one cointegration relationship between the variables. The results of Granger causality tests indicate that corruption does not cause economic growth, foreign and domestic investments in the short run. Moreover, we find that there is strong long run unidirectional causality running from corruption to economic growth, foreign direct investment, domestic investment, and domestic credit. Estimation of the panel fully modified ordinary least squares model indicates that corruption has a negative impact on economic growth whereas a positive influence on domestic investment. Hence, the policy implication resulting from this study is that the improvement of corruption perception index in Gulf Cooperation Council countries is not without a positive impact on economic growth in the long run for these countries even not for domestic investments.