What Does Recent Survey Data Say About the Effect of Corruption on Poverty in Africa?

Abstract

Poverty is perpetuated by increased levels of corruption. It diverts resources, which denies the poor masses their right to enjoy necessities to improve their living standards. To estimate the impact of corruption on poverty, the study relied on the random effect, fixed effects and the instrumental variable regression techniques. The estimates from the instrumental variable regression show that OLS underestimates the effect of corruption on poverty levels in Africa. That's, it shows that the OLS estimates are biased downwards due to inconsistencies as a result of the endogeneity of the levels of corruption. While the instrumental variable technique produces an estimated effect ranging from .805-1.073 increased levels of corruption on lived poverty index, the OLS estimates an impact within a range of approximately .058-.168. This paper confirms the governance model of the effect of corruption on poverty through its effects on reducing the credibility of public institutions. The study thus recommends that public institutions must be strengthened, financed and be equipped to be able to apply the rule of law, thereby helping reduce corruption.