Beneficial Grease Hypothesis of Public Sector Corruption in Economic Development: The Nigerian Experience

Abstract

The objective of the paper was to empirically investigate the validity of the beneficial grease hypothesis of public sector corruption with particular reference to Nigeria over the period 1981-2012. The study employed a multiple regression Ordinary Least Square methodology and the Johansen framework on secondary data to examine the nature of relationships between public sector corruption and five developmental explanatory variables. The empirical results confirm the existence of cointegration between public sector corruption and the identified variables. The results of causality tests indicate that public sector corruption does not Granger cause Gross Domestic Product and consequently Nigeria’s development. There is bidirectional causality from total expenditure to public sector corruption, while capital expenditure and foreign private investment Granger cause public sector corruption. The estimated regression results indicate that unemployment is positively related to public sector corruption while public sector corruption and GDP are inversely related; there is a strong inverse relationship between public sector corruption and foreign debt; capital expenditure and public sector corruption are positively related. The CUSUM and CUSUMQ results show the constancy of estimated parameters in the study period. The policy implication is that unless and until corruption is stamped out in Nigeria’s public life, promoting the country’s economic development, reducing unemployment and achieving a high standard of living among the people are not likely to be achieved. The conclusion is that the beneficial grease theory is not applicable to Nigeria and public sector corruption must be seriously addressed with the aim of eradicating it.

Keywords: Cointegration, Corruption, Economic Development, Poverty, Public Sector.