Does innovation affect the impact of corruption on economic growth? International evidence

The corruption-economic growth nexus and the relationship between innovation and corruption have long been extensively studied. While individual issues have been empirically analysed, two effects have not yet been sufficiently researched: (1) the overall effect of innovation on the corruption-growth relationship and (2) the direction of causality between these variables. The present article used data from 109 countries over the 2010- 2018 period and focused on the macro level. We employed Granger causality tests for panel data (Dumitrescu-Hurlin) to determine the direction of causation among variables. We also employed nonstationary panel techniques with Fully Modified Ordinary Least Square (FM-OLS) to assess stationarity and long-run relationships. After investigating the direct impact of corruption on economic growth, we then examined the indirect effect through different transmission channels, including innovation. The results were tested and found robust in subcategories based on the developmental and regional levels. Finally, this study analysed the impact of innovation on the relationship between corruption and economic growth. The results indicated a robust negative relationship between corruption and economic growth and corruption and innovation. The findings also revealed a positive relationship between innovation and economic growth and a bidirectional causality between the variables. Furthermore, innovation was found to reduce the harmful effects of corruption on economic growth, mainly in developed countries.(c) 2023 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.