The moderating effect of financial leakages on the relationship between Capital Expenditure (CAPEX) and economic growth in Zimbabwe

Abstract

This paper assesses the moderating effect of financial leakages (corruption) on the relationship
between capital expenditure (CAPEX) and economic growth. Corruption is an exogenous
factor with negative effects on the efficiency and effectiveness of CAPEX use in the public
sector. This paper empirically examines the moderating effect of corruption on the relationship
between CAPEX and economic growth. Autoregressive distributed lag model was used to
determine the moderating effect as the model tests both shot run and long run effects. The
model also accepts regression of variables co-integrated at different levels. The results show
that CAPEX has positive effects on economic growth. However, corruption is cancerous on
the allocation and use of the CAPEX, both in the short and long run. Financial leakages were
found to have a negative moderating effect on the relationship between CAPEX and economic
growth both in the short and long term. The moderation is stronger in the long term as
compared to the short term. Government should tackle financial leakages (corruption) head
on to reduce financial haemorrhage in Zimbabwe’s infrastructure projects.