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Education and Corruption: a Stochastic Frontier Analysis: Evidence from

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Article  in  Journal of the Knowledge Economy · September 2020

DOI: 10.1007/s13132-019-00589-1

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Journal of the Knowledge Economy
https://doi.org/10.1007/s13132-019-00589-1

Education and Corruption: a Stochastic Frontier Analysis:

Evidence from Developed and Developing Countries

Marwa Sahnoun 1 & Chokri Abdennadher 2

Received: 2 February 2018 / Accepted: 1 February 2019/

# Springer Science+Business Media, LLC, part of Springer Nature 2019

Abstract
The objective of this paper is to explain how a political institution (corruption) affects
the efficiency of educational expenditure as an essential component of the knowledge
economy. We applied a stochastic frontier analysis method to our sample of 35
developed and 40 developing countries over 16 years from 2000 to 2015. Using two
proxies of corruption based on Transparency International and Worldwide Governance
Indicators databases, we empirically demonstrated that corruption can mainly affect the
expenditure distortion on education. We found strong evidence of the negative impact
of corruption bias on the education technical efficiency expenditure, especially for the
developing countries. One of the main goals of the developed and developing coun-
tries’ governments is the reduction of corruption to ensure better education and
knowledge economy, educate the population, and train specialists which are needed
to stimulate economic growth by optimizing the resources of government.

Keywords Corruption . The efficiency of educational expenditure . Stochastic frontier

analysis

JEL Classification I2 . H52 . O57

Introduction

Public spending on education improves the level of human capital, which is a necessary
condition for economic prosperity (Lucas 1988). The study of the efficiency of public
spending has expanded in the economic literature, including the contributions of

* Marwa Sahnoun
marwa.sahnoun1@gmail.com

1
Unit of Research C.O.D.E.C.I, Faculty of Economics and Management of Sfax, University of Sfax,
Airport Road Km 4, 3018 Sfax, Tunisia
2
Faculty of Economics and Management of Sfax, University of Sfax, Sfax, Tunisia
 Journal of the Knowledge Economy

Afonso and St Aubyn (2005), Gupta and Verhoeven (2001), and Tanzi and Schuknecht
(2000). In the economic theory, the efficient and effective use of public resources is
seen as the engine of economic growth and human development. In the education
sector, several studies (Lucas 1988; St Aubyn 2002; Herrera and Pang 2005; Afonso
and Aubyn 2006; Hauner 2008; Becker 2008) have been carried out about both the
efficiency of the expenditure on public education and its determinants. Moreover,
public spending on education can be defined as government expenditure that includes
direct expenditure in the educational institutions and government grants related to
education provided to households and administered by educational institutions. In the
education sector, some studies assess the efficiency of the state, especially the relation-
ship between the resources allocated to the sector and efficiency indicators (Putnam
et al. 1994; Mauro 1995; La Porta et al. 1999; Hauner 2008). For instance, using non-
parametric methods (data envelopment analysis), some studies showed that the perfor-
mance and efficiency of the public sector (at the national level) revealed significant
differences of effectiveness across countries (Gupta and Verhoeven 2001; Gupta et al.
2002; St Aubyn 2002; Afonso and St Aubyn 2005; Afonso and Aubyn 2006).
The efficiency of educational expenditure would be one of the diagnostic studies
facilitating the implementation of effective and efficient management policy
transparency of resources allocated to the educational sector. Becker (1962) affirms
that investment in education may lead fairer distribution of income. He also argues that
the analysis of the efficiency of public expenditure is recognized as the best and most
transparent tool to understand the practices of the authorities to reach the objectives set
regarding educational policies. Recently, Jessop and Sum (2017) have stated that
education is a sign of capacity and efficiency in the labor market. Indeed, public
spending is a crucial instrument for development in particular for human development
through public spending on education. The average public expenditure on education
between 2000 and 2015 at 5.48% of GDP was recorded in the 19 developed countries
treated in our sample while 4.73% of GDP was recorded in the 18 developing
countries. This divergence is due to structural and cyclical differences. Hence, several
countries have had to revise the management of their public spending on education to
approve the performance of their educational sector.
Some authors (Lucas 1988; St Aubyn 2002; Herrera and Pang 2005; Afonso
and Aubyn 2006; Hauner 2008) have shown the performance of public spending
on economic growth. However, performance is not limited to the results obtained
on economic growth because the government can also be judged on the quantity
and the quality of the public services offered in education. On the one hand, not
all countries are getting the same results for their public spending on education.
Differences may be due to, among other things, corruption and to the fact that the
efficiency of public spending depends on the level of governance (Pritchett 1996;
Rajkumar and Swaroop 2008). According to Haque and Kneller 2009, Campos
et al. 2010, and Blackburn et al. 2010, if public spending is properly and
judiciously allocated to the desired sectors, credibility is given to governance,
which promotes economic development. Moreover, in recent years, the role of
good governance has been seen as the key to effective development (Rajkumar
and Swaroop 2008). It is widely accepted that, in developing countries Azariadis
and Lahiri 1997, D’Agostino et al. 2016), because of the high level of corruption,
the state organization is particularly ineffective, the democratic control of the civil
Journal of the Knowledge Economy

community over the actions of the government is absent, and bureaucrats have
wide discretion.
Indeed, corruption influences the composition of public spending (Cooray et al.
2017). In fact, it has a negative impact on education public spending (Mauro 1998).
Moreover, it would influence spending as some areas would make it easier to collect
bribes and keep them secret. Unlike high-tech and non-competitive sectors where it is
difficult to know the value of products, education would be an unattractive sector.
Therefore, corruption has an impact on public services, not only through the results per
unit spent in a sector but also in the allocation of expenses. In fact, corruption leads to a
misallocation of resources that could harm the economy and the overall efficiency of
governments. As a consequence, the fight against corruption will be one of the main
objectives of the developed and developing countries.
On the other hand, Tanzi and Davoodi (2002) showed that corruption leads to
increased public spending. In addition, high levels of corruption and public spending
can reinforce each other and lead to the continuation of significant public expenditures
(Dzhumashev 2014). Thus, public servants may be more inclined to make significant
capital investments at the expense of labor-intensive investments to maximize rent-
seeking (Kaufmann 2010). The size and scope of the capital investment represent
corruption for officials take bribes in capital-intensive projects as opposed to labor-
intensive projects. In fact, corruption not only increases the size of public spending but
can also change its composition in vital sectors, such as health and education (Mauro
1998; Wei 2001), to areas involving more secrecy and less transparency as a defense.
However, other studies (Shleifer and Vishny 1993; Tanzi and Davoodi 1998; Tanzi
1998; Mauro 1998; Gupta et al. 2000; and Gupta and Verhoeven 2001) suggested that
corruption has been found to reduce expenditure on education. Corruption negatively
affects investment in human capital, specifically for education spending (Ehrlich and
Lui 1999; Mauro 1997, 1998).
Improving the level of education of people in society represents the increased
human capital of this country, which leads to improved efficiency of these
expenditures in favor of education. In addition, the approval of the performance
of the education sector requires the management of their expenditure on education.
Public spending on education is crucial so that the findings have strong implica-
tions for the effectiveness of the education sector. It is generally admitted that the
role of good governance is the key to the effectiveness of the education sector
following the high levels of corruption and public spending that can reinforce each
other and lead to the continuation of large public expenditures. In particular, our
contribution is to compare the evaluation efficiency in education across the
developed and developing countries to see if effectiveness and inefficiency are
country specific. One of the most important issues in this context is as follows:
what is, until now, the efficiency of education spending in the developed and
developing countries and how corrupt practices in government institutions that
promote knowledge creation and intellectual development help reduce the effi-
ciency of resources allocated to education? Do the developed countries have the
same trends as the developing ones or are there specificities for each group of
countries? From an empirical point of view and to our knowledge, stochastic
frontier analyses, as a parametric method to determine the variables that best
explain the level of inefficiency, have not yet been used in this context. In
 Journal of the Knowledge Economy

addition, the review of this effectiveness using stochastic frontier analysis (SFA)
applied to 75 countries and two main subgroups contributes to our analysis.
Our study is structured as follows. BLiterature Review^ deals with theory and
previous empirical findings. BMethodology^ discusses the used methodologies. BData^
presents the data. BResults and Interpretation^ discusses the results of the empirical
analysis. Finally, we summarize the conclusions and discuss some policy implications.

Literature Review

This literature focuses mainly on how the institutional variables can affect public
education spending. On the other hand, corruption is a relatively complex phe-
nomenon encompassing a range of human actions (D’Agostino et al. 2016).
Indeed, the World Bank defines corruption as a public service abuse for private
purposes. Similarly, the Transparency International database provides a similar
definition, but more general definition to the extent that corruption is not limited
to the public sector. Furthermore, institutions have become well established as
determinants of the efficiency of government (Hauner and Kyobe 2008).
According to Dal Bó and Rossi (2007), controlling corruption is a very intuitive
determinant of efficiency since corruption leads to waste. In fact, the impact of
corruption on the amount of public spending is controversial. Indeed, several
studies (Shleifer and Vishny 1993; Tanzi and Davoodi 1998; Tanzi 1998; Mauro
1997; Mauro 1998; Gupta et al. 2000; Gupta and Verhoeven 2001; Delavallade
2006) suggested that corruption reduces public spending efficiency and lowers
expenditure on education as percentage of GDP. For their part, Tanzi and Davoodi
(1998) showed that a high level of corruption distorts the pattern of spending. In
this context, Gupta et al. (2003) dealt with the negative impact of corruption on
human development, showing that it is detrimental to the education level of the
population and it also leads to a loss of efficiency in education according to Gupta
et al. (2002). On the other hand, Del Monte and Papagni (2001) affirmed that
corruption reduces economic growth through a negative influence on investments
in human capital. Using the three-stage least squares method on panel data from
96 developing countries between 1996 and 2001, Delavallade (2006) showed that
public corruption distorts the structure of public spending by reducing the share of
social spending (education, health, and social protection) and contributes to the
growth of government spending volume allocated in the sector of public services
and order, fuel and energy, culture, and defense. Using the same method on panel
data of 64 developing countries between 1996 and 2001, Delavallade (2006)
found the same results. He also affirmed that an increase of public procurement
will be involved in spending on fuel and energy, culture, and public services as
well as public order because this type of expenditure gives more freedom of
action, and therefore more opportunities for corruption than social spending that
involves more predetermined spending. In addition, corruption affects the spend-
ing of some economic sectors in proportion to GDP, especially education (Mauro
1997). The author suggested that a country that improves its position on the
corruption index will register a 0.5 point increase in its spending on education.
By exploring data from 100 countries and using OLS and IV techniques, Mauro
Journal of the Knowledge Economy

(1998) suggested that predatory behavior by corrupt politicians distorts the com-
position of public spending, which reduces government spending on education.
Similarly, De la Croix and Delavallade (2009) showed that countries with high
corruption invest less in education. Moreover, by using cross-sectional data for 50
countries in developing and transition countries, Gupta and Verhoeven (2001)
showed that increasing public spending on education reduces drop-out rates only
in countries with low levels of corruption. For his part, Hessami (2010) used a
panel dataset for 26 OECD countries over the period 1996–2008 and showed that
corruption has no significant effect on education spending. In a recent study,
Hashem (2014) has tested this relationship using a simple regression model for
the Arab countries and found that, when the CPI increases or the level of
corruption decreases, there is a significant increase of public spending on educa-
tion and health since their supply is not associated with sophisticated equipment
provided by international (or national) monopolies and oligopolies. According to
Hashem (2014), corruption alters the structure of public spending on defense and
energy to the detriment of social sectors such as education and health.
Rajkumar and Swaroop (2008) used annual data for 1990, 1997, and 2003 for 57
countries and found that an increase of the share of public spending on education will
not probably lead to better results if countries have poor governance which is relevant
for developing countries. On the other hand, Baldacci et al. (2008) suggested that the
positive effect of public spending on education is much less pronounced in countries
with weak governance.
Hauner and Kyobe (2010) used a panel data from 26 advanced countries and 88
developing ones from 1980 to 2004 by applying the fixed, random effects and
GMM estimators. They showed that controlling corruption is a very intuitive
determinant of efficiency, given that corruption leads to waste and accountability
of the government in particular, where the fight against corruption can play a
positive role in the efficiency of public spending on education. This implies that
corruption reduces the efficiency of public spending on education. Moreover, any
increase of education expenditure will be translated by a decrease of its
effectiveness. On the other hand, using panel data for 21 OECD countries
between 1998 and 2011, Jajkowicz and Drobiszová (2015) showed that corruption
negatively affects public spending on education.
For his part, Dridi (2014) examined the effects of corruption on education, both
quantitatively and qualitatively, by analyzing regressions for a wide range of
countries. He showed a negative and significant impact of corruption on the
school enrollment rate in secondary education, but the relationship between
corruption and the quality of education measured by repetition rates is low. This
result suggested that corruption significantly decreases the access to school.
Besides, Ehrlich and Lui (1999) indicated that the willingness of policymakers
in an economy to reap the benefits of rents may alter individual decisions to invest
in human capital and spend less time in education. In this respect, corruption
could lead to the formation and accumulation of unproductive human capital. On
their part, Dreher and Herzfeld (2005) found that corruption negatively and
significantly affects the school enrolment for a representative sample of 71
countries for the period 1975–2001. Hence, our hypothesis assumes that corrup-
tion has a negative effect on education efficiency expenditure.
 Journal of the Knowledge Economy

Methodology

We propose a parametric approach using the stochastic frontier analysis (SFA) model of
the production function for panel data developed by Battese and Coelli (1995). The
advantage of this method is that it can identify both technical inefficiency and random
shocks regardless of the producer’s control which can affect production.
Indeed, the SFA concept is that the error term consists of two parts: on the one hand,
a unilateral component that catches the effects of the relative inefficiency of the
stochastic frontier and, on the other hand, an asymmetric component that lets a random
variation of the frontier between policies and includes the effects of measurement
errors, statistical noise, and random error. Indeed, the stochastic frontier approach
isolates the influence of factors from the inefficient behavior, which can correct the
possible upward bias of the inefficiency of the deterministic methods. This frontier can
be written as Eq. (1).


Y i;t ¼ exp X i;t β þ V i;t −U i;t ð1Þ
where Yi, t is the output of the expenditure on education (i = 1,2, ..., N) in the tth period
(t = 1,2, ..., T); Xi, tis a (1 * k) vector of input quantities of the tth control variable of
education policy in the tth period; β is a (1 * k) the parameter to be estimated; Vi, t is the
random variable which is assumed to be iid N(0, σ2U ) and independent of Ui, t; and Ui, t
is a non-negative random variable, associated with the ineffectiveness of the policy,
which is supposed to be distributed as an absolute value of a normal distribution N(0,
σ2V ).
Equation 2 specifies the effect of technical inefficiency Ui, t in the stochastic frontier
model:
U i;t ¼ zit δ þ wit ð2Þ

where μ = zit and variance σ2U , and zit is a (1 × p) vector of explanatory variables
associated with technical inefficiency in the education expenditure over time; wit
represents the random variable which follows a truncated normal distribution with
mean zero and variance σ2U such that the point of truncation is −zit that is wit > −zitδ.
These assumptions are consistent with Ui, t being a non-negative truncation of the
N(zitδ, σ2U ) distribution (Battese and Coelli 1995). The mean zitδ of the normal
distribution, which is truncated at zero to obtain the distribution of Ui, t, is not required
to be positive for each observation (Reifschneider and Stevenson (1991).

The Functional Form

The general form of the Cobb and Douglas (1928) function has been chosen in our
paper among several other types as a functional form of the boundary of the production
function:

ln Y i;t ¼ α0 þ ∑M
i¼1 αi;t ln X i;t þ V i;t −U i;t ð3Þ

where: Yi,t is an output, α0 is «an efficiency parameter» and Xi,t is the output of
production. ln is the natural logarithm and αi (i = 1,2, ..., M) are the output elasticities
with regard to each input and returns to scale which are represented by ∑M i¼1 αi;t .
Journal of the Knowledge Economy

Therefore, we adopt the stochastic frontier analysis (SFA) model. Moreover, we

introduced governance variables (corruption) to explain the inefficiency term (μit).

Inefficiency Modeling

The technical inefficiency model is defined by Eq. (4):

μit δ° þ δ1 ðcorruption 1Þit þ δ2 ðcorruption 2Þit þ wit : ð4Þ

The originality of this work is shown in the introduction of the effect of corruption bias
in the explanation of the underperformance between the optimal frontier and the
observed one. We use two variables: corruption 1 and corruption 2. In our formulation,
corruption 1 is a proxy for BKaufmann corruption index^ measured on a scale of − 2.5
(totally corrupt) to + 2.5 (not corrupt), which were obtained from Worldwide Gover-
nance Indicators (WGI). Corruption 2 is a proxy for Bcorruption perception index^ that
we construct according to (Nolte et al. 2013; Podobnik et al. 2008). In this perspective,
each country has a score (from 0 for the most corrupt to 10 for the most ethical
countries), according to Transparency International: the higher the rank of countries is,
the more corrupt it would be.

Data

Our dataset consists of 1200 annual observations. In fact, we used balanced data
from 2000 to 2015 for a global panel consisting of 75 countries (35 developed and
40 developing). The grouping of countries used in the study is based on the World
Bank and given in the appendix. These countries are selected on the basis of the
availability of data. For this reason, we propose a single variable as a measure of
the output, three variables as inputs, and two variables as an inefficiency correla-
tion. We also use the government expenditure on education, total (% of GDP), as
an appropriate measure of the output. As for the input, the following control
variables are introduced: GDP per capita 2010, the number of population members
aged between 0 and14, and political stability.
The GDP per capita data are used as an indicator of economic growth. In addition, the
number of population members aged between 0 and 14 was used as a demographic
indicator. On the other hand, political stability, as an institutional index of government,
indicates perceptions of the likelihood of the government being stabilized or overthrown
by non-constitutional or violent means, including political violence and terrorism. To
capture the inefficiency of spending on education, a governance variable called the
Bcorruption perception index^ (CPI) was introduced. It represents the perceived corruption
index, which is defined as the abuse of the power delegated for private purposes.
Moreover, a BKaufmann corruption index^ (KCI) variable was used. It reflects the use
of public powers for personal enrichment. The various measures and sources of these two
variables were cited in the previous section. Both variables reflect a symptom of the
inefficiency of governance.
The descriptive statistics of input, the output, and the efficiency correlations of the
studied countries are reported in Table 1.
 Journal of the Knowledge Economy

Table 1 Descriptive statistics

Variable Obs Mean Standard deviation Min Max

Output
Ln expenditure on education (% of GDP) 1200 1.047 0.465 0.012 2.061
Input
Ln GDP 1200 6.515 2.560 2.743 11.625
Ln number of population 1200 10.895 4.341 5.179 19.756
Political Stability 1200 0.126 1.010 − 2.810 1.760
Inefficiency correlate
Corruption index Kaufmann 1200 0.381 1.109 − 1.555 2.469
Corruption perception index 1200 5.207 2.338 0.4 10

Results and Interpretation

Public Education Efficiency in Developed and Developing Countries

We try to classify the countries studied in this research into two groups: developed and
developing countries according to the classification of countries by the World Bank.
According to Fig. 1, the average technical efficiency curve of education operators in
the developed countries is higher than that of the developing countries. In general,
public education operators in the developed countries have higher scores than those in
the developing countries.
The average technical efficiency of education expenditure in the developed and
developing countries tended to be constant over the last 4 years of the study (0.87 for
the developed countries and 0.79 for the developing ones). However, the average
efficiency dropped between 2004 and 2008, which could be explained by an increase
of corruption in the education sector.

Stochastic Frontier Analysis Results

The estimated parameters of the production function frontier and inefficiency determi-
nants are shown in Table 2 using the BFrontier 4.1^ program (Battese and Coelli 1995).
Indeed, Table 2 reports the results of the maximum likelihood estimates (MLE) of the
parameters in the study for the three panels (overall, developed countries, and devel-
oping countries).

0.95
0.90
0.85 All countries
0.80
0.75 Developed countries
0.70 Developing countries

Fig. 1 Average technical efficiency of the developed and the developing countries
Table 2 Estimated parameters of the Cobb-Douglas production function

Estimated MLE coefficients

Global panel Developed countries Developing countries

Variables Parameters Model 1 Model 2 Model 3 Model 1 Model 2 Model 3 Model 1 Model 2 Model 3
Constant α0 0.167*** 0.132*** 0.154*** 0.929*** 0.741*** 0.403*** 0.254*** 0.212*** 0.220***
(0.018) (0.023) (0.010) (0.256) (0.258) (0.261) (0.028) (0.028) (0.027)
Journal of the Knowledge Economy

Ln GDP per capita α1 0.117*** 0.108*** 0.115*** 0.217*** 0.217*** 0.218*** 0.078 0.069 0.070
(0.051) (0.005) (0.005) (0.055) (0.005) (0.005) (0.008) (0.008) (0.008)
Ln number of population α2 0.027*** 0.036*** 0.030*** 0.028*** 0.028*** 0.029*** 0.043 0.052 0.050
(0.003) (0.003) (0.003) (0.043) (0.004) (0.041) (0.005) (0.0049) (0.005)
Political stability α3 0.043*** 0.032*** 0.045*** 0.056*** 0.008** 0.004** − 0.002*** − 0,013*** − 0.013***
(0.010) (0.010) (0.009) (0.015) (0.016) (0.015) (0.014) (0.014) (0.014)
Constant δ0 1.280*** 1.306*** 0.348** − 6.490*** − 5.099*** − 8.541 − 2.444*** 1.740*** 0.751***
(0.169) (0.113) (0.179) (2.046) (2. 621) (3.208) (0.781) (0.207) (0.513)
Corruption 1 δ1 0.179*** 0.450*** 0.992*** 0.262*** 0.191*** 0.542***
(0.722) (0.098) (0.292) (0.872) (0.401) (0.264)
Corruption 2 δ2 − 0.468*** − 0.324*** − 0.384*** − 0.735*** − 0.791*** − 0.645***
(0.052) (0.035) (0.190) (0.234) (0.159) (0.187)
Sigma-squared σ2 0.288*** 0.200*** 0.257*** 0.118 0.119*** 0.106*** 0.488*** 0.372*** 0.414***
(0.040) (0.018) (0.028) (0.352) (0.571) (0.396) (0.142) (0.083) (0.113)
Gamma ɣ 0.893*** 0.845*** 0.877*** 0.994 0.994*** 0.994*** 0.934*** 0.920*** 0.927
(0.016) (0.020) (0.016) (0.002) (0.002) (0.0022) (0.021) (0.021) (0.021)
Log likelihood function 53.995 54.056 62.580 271.841 271.356 271.951 100.928 91.447 89.447

Standard error is in parentheses

*Significant at 10% level, **significant at 5% level, ***significant at 1% level
Model 1 includes CIK; model 2 includes CPI, and model 3 includes both of CIK and CPI
 Journal of the Knowledge Economy

For the global panel of countries and for the developed countries, the input coeffi-
cients are estimated to be positive. The GDP, the population variables, and political
stability are positively and significantly correlated with the expenditure on education at
1% level. These results indicate that an increase of GDP and the number of people is
accompanied by an increase of educational expenditure. These results are consistent
with those of Hauner and Kyobe (2008), which implies that economic development
favors fiscal sectors, such as education. Thus, educational expenditure depends on the
child population because the public effort for education is more difficult when the
population of children in the population is high.
For the developing countries, the GDP and population variables are positively but
not significantly correlated with the expenditure on education. Besides, political sta-
bility seems to be negatively and significantly correlated with expenditure on educa-
tion. These results are opposed to those found by (Delavallade 2006) for the developing
countries. This implies that economic growth can favor other sectors (health, social
protection, energy, and defense) to the detriment of education. This can be explained by
the fact that countries with high corruption invest less in education (De la Croix and
Delavallade 2009). Unlike in the developed countries, economic stability in the devel-
oping countries does not favor increased education spending, because these countries
are characterized by political instability, which in turn constitutes an inefficient insti-
tutional framework. In each subpanel, we specify three models. First, we only deter-
mine the effect of KCI using the first proxy, corruption 1. The second model includes
the effect of CPI by substituting the first proxy with the second, corruption 2. Finally,
we re-estimate our model using corruption 1 and corruption 2 as determinants of
technical inefficiency of education.
In all the subpanels, the signs of the estimated coefficients of the first determinant of
inefficiency (δ1) are positive and significant in the first model. This leads to a negative
relationship between corruption 1 and the efficiency technique in the three estimated
models, which means that these variables positively affect the technical inefficiency of
education. These coefficients are stronger in the developing countries. This can be ex-
plained by very high corruption scores in these countries. Noteworthy, the second proxy
CPI, which is used as a corruption measure, will be inversely related to the second. This
means that an increase of the CPI would necessarily denote a decrease of corruption. The
coefficient signs of the second determinant of inefficiency (δ2) are negative and significant
in the second model with a strong coefficient size in the developing countries. Finally, in the
third model, our results about corruption 1 and corruption 2 are robust. We conclude that
there is a positive association between corruption 1 and the inefficiency term and a negative
association between corruption 2 and the inefficiency term with coefficients still high for
the developing countries. Moreover, corruption can explain the shortfall between the
optimal value of production function and its observed value Y*-Y. Therefore, our hypoth-
esis is accepted for all the three subpanels (global, developed, and developing countries).
These results confirm those of (Shleifer and Vishny 1993; Tanzi and Davoodi 1998; Tanzi
1998; Mauro 1997; Mauro 1998; Gupta et al. 2000; and Gupta and Verhoeven 2001;
Dreher and Herzfeld 2005; Delavallade 2006; and Jajkowicz and Drobiszová 2015) who
suggested that corruption distorts the structure of public spending and limits the volume of
public spending especially in the educational sector.
Journal of the Knowledge Economy

In addition, Mauro (1997) admits that a country improves its position on the
corruption index (reduces its corruption score) and even increases its spending on
education. On the other hand, Jajkowicz and Drobiszová (2015) argued that worsening
corruption distorts the structure of public spending and reduces the share of spending
on education, health, leisure, and culture. This shows that the increase of corruption
(the fall of the CPI score) reduces spending on education.
Gamma (ɣ) is the ratio of the variance parameters of the random errors and technical
efficiency effects, σ2V and σ2U , which scale between 0 and 1. In our study, the estimated
value of gamma is greater than zero and statistically significant at 1% level. This result
implies the presence of random components of technical inefficiency effects and provides
a better estimation of the technical efficiency of education expenditure. In fact, the
technical inefficiency effects are relatively significant for the random error term.

Conclusion

This paper proposes a new explanation of efficiency distortions of public spending on

education. Compared to the previous literature, our empirical investigation is based on
a stochastic frontier analysis of a dataset of 75 countries (35 developed and 40
developing countries) over 2000–2015 periods.
Our empirical results indicated that corruption measured by both the corruption
perception index and the Kaufmann corruption index has a statistically significant
influence on education spending in all regressions. Given the potential importance of
these findings, a robustness analysis was undertaken to see if the results were stable
across different measures of corruption. The results were found to be important and
strikingly robust through the term of interaction between corruption 1 and corruption 2
and provide strong evidence of the harmful effects of corruption on education spending.
These results suggest that corruption plays a significant role in determining the
inefficiency of government expenditure on education, especially, in the developing
countries. Furthermore, the results show that the improvement of developing countries
is blocked by the trap of high corruption in which they are caught and traditional anti-
corruption policies have failed to reduce corruption in these countries.
It can be admitted that corruption imposes significant costs on the economy. In fact, in the
developing countries, in particular, corruption distorts education spending, weakens institu-
tions, limits the foreign direct investment, and exacts an excessively high price by denying
them access to international capital markets and decreasing growth and investment.
According to these results, there are important implications for economic policy
derive. The creation and diffusion of knowledge, especially through education expen-
diture, require good governance, which in turn depends on some conditions, such as the
quality of the institutional environment, including trust, reciprocal rights, and respon-
sibilities between different knowledge partners, institutional regimes, and strategies,
and all the sociological backgrounds. Indeed, improving and strengthening the quality
of governance and public institutions, in general, should diminish corruption, which
constitutes a threat to the economic growth and consequently an institutional factor
which reduces the efficiency of the public expenditure. In addition, the creation of an
 Journal of the Knowledge Economy

educational model that meets the criteria of encouraging individuality and creativity
would not be possible without solving the problem of corruption.
Yet, this fight against corruption is not limited to the developing countries but also to
the developed. The fight against corruption is therefore closely linked to the State
reforms. Corrupt countries should be encouraged to spend their spending on public
services and order, defense, culture, and energy, to counteract the distorting effects of
corruption. It is imperative to intensify reform efforts to address the pervasive problem
of corruption and address its causes, as well as the institutional environment and the
incentive structure underlying it.

Appendix

Developed countries (35): USA, Canada, Japan, Netherlands, Germany, Denmark,

Switzerland, Austria, Belgium, Finland, New Zealand, France, Australia, Italy, Spain,
Sweden, Norway, Portugal, UK, Iceland, Bulgaria, Estonia, Croatia, Hungary, Malta,
Poland, Romania, Slovakia, Slovenia, Ireland, Luxembourg, Cyprus, Czech Republic,
Latvia, Lithuania.
Developing countries (40): Egypt, Tunisia, Mauritania, Cameroon, Kenya, South
Africa, Ghana, Mali, Malaysia, Vietnam, Iran, Yeman, Turqui, Lebanon, Saudi Arabia,
Qatar, Oman, Kuwait, Morocco, Sudan, Central Africa, Chad, Congo, Gabon, Zambia,
Malawi, Côte d’Ivoire, Nigeria, Senegal, Republic of Korea south, Thailand, Bangla-
desh, India, Pakistan, Israel, Costa Rica, Mexico, Brazil, Chile, Colombia.

Publisher’s Note Springer Nature remains neutral with regard to jurisdictional claims in published maps and
institutional affiliations.

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