Theoretical studies suggest that corruption may counteract government failure and
promote economic growth in the short run, given exogenously determined suboptimal
bureaucratic rules and regulations. As the government failure is itself a function of
corruption, however, corruption should have detrimental effects on economic growth in
the long run. In this paper, we measure the rate of economic growth for various time
spans-short (1998-2000), middle (1995-2000) and long (1991-2000)-using
previously uninvestigated state-level cross-section data for the United States. Our
two-stage least square (2SLS) estimates with a carefully selected set of instruments
show that the effect of corruption on economic growth is indeed negative and
statistically significant in the middle and long spans but insignificant in the short span.
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