The influence of corruption on selected macroeconomic varibles and economic growth nexus among COMESA Countries

Abstract

Economic growth has remained an elusive issue in all economies in the world for a long period of time with empirical studies about factors determining economic growth giving mixed results in different countries. Common Market of Eastern and Southern Africa (COMESA) was founded to foster and promoting joint development in all fields of economic activity and the joint adoption of macro-economic policies and programmes to raise the standard of living of its peoples among its members states. Among others, emphasis was put on mobilizing domestic financial resources, mobilizing international resources, and promoting international trade as the engine of economic growth. However, it is not clear if these policies are a panacea to economic growth issue in COMESA countries and economic growth in these countries has remained a challenging issue in all economies. This study analyzed determinants of economic growth. The specific objectives were to establish the significant effect of investor protection, credit to private sector and foreign exchange rates on economic growth. Further the study sought to evaluate the moderating effect of corruption. Finally tested the cointegrating relationship. The study was guided by Rostow Stages of Development, Solow’s Classic Model, Cognitive Psychology of Corruption and Purchasing Power Parity theory. This study adopted positivist research paradigm. Explanatory research design was applied for the period 2000 – 2020 for 18 COMESA countries. Data was collected from World Bank and Transparency International database. Results indicated that stationarity was observed at levels. Johansen Fisher cointegration confirmed long run relationship among the variables. Hausman suggested random effects was appropriate over fixed effects. Multivariate linear regression assumptions such as normality, multicollinearity, heteroscedasticity, and serial correlation were tested. From output, Credit to private sector (β = .0267, p = .000), and foreign exchange rate (β = .0003, p = .004) had a positive and significant effect on economic growth while strength of investor protection (β = −.4568, p = .000), and corruption (β = −.2179, p = .037), directly had a negative and significant influence on economic growth. Further, corruption significantly moderated the link between investor protection and foreign exchange rates on economic growth with respective coefficient and their probabilities, (β = −.140, p = .004) and (β = .0003, p = .000). The study concluded by expounding that an increase in credit to private sector spurs economic growth. This is because investors are willing to invest in more risky venture while encouraging safe borrowers. A depreciation of the currency can make a country's exports cheaper and imports more expensive. The financial sector, especially in the formal sectors of the economy, is critical in channeling savings into productive investment. The banking sector is widely regarded as an important economic conduit for financial intermediation. Credit to private sector increases a country's productive capacity. The result of this research adds new knowledge by analyzing the determinants of economic growth among COMESA countries. Results enables macroeconomists, policy makers and central banks of all the nations to deeply understand the role of investor protection, credit to private sector, foreign exchange rate, and the negative impacts of corruption to spur economic growth.