Nexus between Corruption, Government Expenditure and Economic Growth in East African Community Member States

Abstract

The pursuit of sustainable economic development amidst corruption has become a fundamental challenge for most economies globally and East African Community states are not exceptional. East African Community states are ranked among the most corrupt countries globally. The region is characterised with ever increasing government expenditure, high fiscal deficits and retarded economic growth. Individual countries in the region have failed to attain and sustain an average of 7% per capita economic growth rate to fast-track the set Sustainable Development Goals and African agenda 2063. This necessitated a study to investigate the nexus between corruption, government expenditure and economic growth in East Africa Community states using the three indicators of corruption. Specifically, the study established the determinants of corruption, effect of corruption on government expenditure and economic growth in East African Community states. The study employed non-experimental research design using extended Becker theory of crime and Augmented Solow model of growth. In establishing the nexus, the study employed system generalized methods of Moments estimation technique. The results revealed that corruption is determined by the following variables: economic growth, government effectiveness, capital formation, Gini index, inflation, political stability, human capital and political stability. The study confirmed that for all corruption indicators there was a positive relationship between corruption and government expenditure. A positive affiliation between government expenditure and economic growth was also established. To establish a nexus between corruption and economic growth, all corruption indicators showed a negative liaison. It is thus recommended that respective East Africa Community states should promote and implement institutional reforms such as reforming the entire justice systems to ensure government effectiveness, rule of law and enhanced accountability. They region Governments should not only establish independent agencies to monitor and track government expenditures, but also put in place prudent fiscal policy measures that promote stable and high-rate of economic growth.