Corruption and Indonesia’s Regional Economic Performance

Whether corruption supports or hampers economic growth is a vexed theme in developmentresearch, particularly at the sub-national level where research is scant. This paper usescorruption data from court reports to analyse how corruption affects economic performance atthe sub-national level in Indonesia. The regression models use dynamic panel estimationincorporating spatial dependence, and dealing with endogeneity and omitted variables. We finda consistent negative effect of corruption on regional growth across all specifications. Spatialeffects reveal the influence of neighbouring districts’ growth, which amplifies the negativeimpact of corruption. Evaluating potential pathways of corruption indicates government size,poverty, education, and infrastructure do not significantly mediate corruption at the sub-national level. The policy implication is that anti-corruption efforts need not only be targetedbut also well-coordinated: merely maintaining the level of government service or provision ofinfrastructure does not address the negative consequence of corruption on regional economicgrowth