The Role of the Human Capital in the Corruption-Economic Growth Nexus: A VECM Approach to the Case of Tunisia

The Role of the Human Capital in the Corruption-Economic Growth Nexus: A VECM Approach to the Case of Tunisia

Terzi Chokri (Faculty of Economic Sciences and Management of Sousse, Sousse University, Tunisia & LEGI, EPT, Carthage University, Tunisia) and El Ammari Anis (Faculty of Econoimic Sciences and Management of Mahdia, Monastir University, Tunisia)
DOI: 10.4018/IJHCITP.2020100104

Abstract

This article examines the corruption effects on economic growth in Tunisia during the period 1987 to 2016. The model used in this study is an extension of Solow's model by defining corruption in the field of technical progress. In order to delineate the role of the human capital in corruption, the study sets out to estimate the model firstly in the absence and in the presence of human capital. One outstanding result of VECM estimations is that, in the long run, the human capital plays a key role in the increase of the effect of the total corruption and the decrease in the effect of the growth of the population without effecting a change in the physical capital. In the short term, human capital allows to transform the negative effect of the delayed variable output into a positive one. It also increased the effect of total corruption and made the effect of physical capital positive.
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Introduction

In contemporary literature, economists such as Hirschman (1958), Myrdal (1968), North (2005), Olson (1993), and Williamson (1985) have dealt with the interaction theme between institutions and economic variables. Under the studies of Ackerman (1999) and Klitgaard (1987), attention was paid to corruption because of its appalling consequences on economic development.

It is worth to note, however, that, today, corruption is no longer just a political or social issue, but it has become an important avenue of economic research. Corruption is often defined as the abuse of the public service in order to get personal gain. Though no country is immune from corruption, it seems that it takes its toll on developing countries; of course, in varying degrees. Despite a plethora of theoretical and empirical studies, there is still no agreement on the different ways in which corruption might affect economic growth (Gyimah-Brempong, 2002; Li et al., 2000). Several authors have stipulated that corruption has promoted economic growth (Leff, 1964; Huntington, 1968; Lui, 1985) since it bypasses the administrative backlog for businesspersons. According to Ablo and Reinikka (1998), corruption could also hinder the accumulation of human capital by discouraging young people to pursue higher education.

Many studies examined the effect of corruption on human development (e.g. Blackburn and Forgues- Puccio, 2007; Blackburn et al, 2006). They seem to agree that corruption might compromise human development through deterioration in the scale of public health and education programs. In addition, other authors including Pellegrini (2011) and Gupta et al. (2000) have provided similar evidence and reported that the relationship between corruption and economic growth becomes statistically insignificant after controlling for other important determinants of growth. Examples of these determinants include investments, human capital, openness, and political instability.

In fact, in corruption-infested environment, easy money tempts the youth into giving up their studies and indulging into illegal work instead where financial return is immediate. This phenomenon has changed the allocation of public expenditures from education and health to the military and security sectors; this can only damage the quality of educational and health care services. Significant improvements in economic policies can help neutralize this misfortune. Bardhan (1996) argues that the control of corruption stems from the government's credibility with regard to people through the establishment of trustworthy and reliable institutions. In this context, good governance institutions are at the root of any anti-corruption policy.

This study focuses on the relationship between economic growth and corruption and it hopes to shed light on the role of the human capital. Indeed, many economists have explored the direct impact of corruption on economic growth (Omrane, 2016; Ugur & Dasgupta, 2011; Dhzumashev, 2009) but they did not examine the various channels through which the corruption effect is introduced. The negative effect of corruption on economic growth has long been validated. Yet, there appears to be no consensus on the channels of transmission of the effect of corruption on economic growth. One of the aspects of the links between corruption and growth, however, remains uncharted in the literature. This is potentially interesting since it would elucidate how corruption possibly harms the formation of human capital by discouraging the youth from pursuing long-term studies. Hence, the idea of studying the interaction between corruption and human capital and estimating their effects on economic development. It is worth to note, in this regard, that despite the availability of some interesting studies on the subject, the majority of the results related to it is work on panel data. In fact, very few studies on the subject have been conducted in time series. Hence, it seems worthwhile to conduct a time span econometric study for the case of Tunisia. The aim, here, is to assess corruption effects and human capital on economic growth between 1987 and 2016.

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