Corruption, mortality rates, and development: policies for escaping from the poverty trap

Abstract

We construct a three-period overlapping generations model in which corruption, mortality and fertility rates, and economic development are determined endogenously. We consider a less developed economy suffering from a high degree of corruption and high mortality and fertility rates in a poverty trap. We focus on two policies: raising public sector wages as a means of reducing corruption and increasing public health spending as a means of improving the mortality rate. Our aim is to examine what effects each policy has on an economy and how governments can achieve economic development using one, or both, of these policies. Our theoretical analysis shows that implementing both policies simultaneously is essential for less developed economies to escape from the poverty trap and achieve economic development.