Motivating factors for rent seeking in the public sector and its effects on the economic growth of the middle income and low income countries

• Main Authors: Galaraga, Caleb M., Rodriquez, Mary Geraldine G., Song, Sangyoon, Wong, Christin Dianne H.
• Format: text
• Language: English
• Published: Animo Repository 2005
• Subjects: Rent (Economic theory); Economic development; Corruption; Investments, Foreign > Corrupt practices; Public institutions > Corrupt practices; Political corruption; Economics
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/14347
• Institution: De La Salle University

According to economic growth theory, the economy prospers when there is good social infrastructure which encourages production and investment. On the other hand, a social infrastructure which encourages diversion has a detrimental effect to the economy. This paper aims to identify the fundamental economic and non-economic factors which cause government officials to engage in rent seeking activities and to determine the impact of rent seeking in middle income and low income countries through the inflow of foreign direct investments. Using the linear regression model and ordinary least squares estimation, the proponents of the study have presented two models: the causes of corruption model and the investment model. In the causes of corruption model, education has the most significant bearing on the level of corruption in the middle and low income countries, meaning more education can reduce corruption. In addition, the only economic factor which is significant at the 10% level was foreign aid while government expenditure as a ratio of GDP does not prove to be significant thus, the proponents are able to justify the harmful effects of corruption on foreign direct investments of the middle income and low income countries. Corruption significantly reduces the incentives of an economy for investment.