Corruption Clubs: Endogenous Thresholds in Corruption and Development

University of Nottingham, GEP …, 2004

This paper presents an analysis of the joint determination of bureaucratic corruption and economic development. The analysis is based on a simple neo-classical growth model in which bureaucrats are employed as agents of the government to collect taxes from households. Corruption is reflected in bribery and tax evasion as bureaucrats conspire with households to provide false information to the government. Costly concealment of this activity leads to a loss of resources available for productive investments. The incentive for an individual bureaucrat to accept a bribe depends on the number of other bureaucrats who are expected to accept bribes. This strategic interaction in bureaucratic decision making produces multiple (frequency-dependent) equilibria associated with different incidences of corruption. The predictions of the model accord strongly with recent empirical evidence. * The authors are grateful for the financial support of the ESRC (grant no. L138251030). The usual disclaimer applies.

Oxford Review of Economic Policy, 2009

Many scholarly articles on corruption give the impression that the world is populated by two types of people: the "sanders" and the "greasers". The "sanders" believe that corruption is an obstacle to development, while the "greasers" believe that corruption can (in some cases) foster development. This paper takes a critical look at these positions. It concludes that the evidence supporting the "greasing the wheels hypothesis" is very weak and shows that there is no correlation between a new measure of managers'actual experience with corruption and GDP growth. Instead, the paper uncovers a strong negative correlation between growth in genuine wealth per capita -a direct measure of sustainable development -and corruption. While corruption may have little average e¤ect on the growth rate of GDP per capita, it is a likely source of unsustainable development.

The Indonesian Journal of Development Planning, 2007

This paper tries to investigate and explain the impact of corruption on per capita GDP across 105 countries. The distinction of this paper comparing to earlier studies is to investigate that the impact of corruption on development is different among countries by involving dummy developed and developing countries and cluster geographical areas (Western and developed countries, Developing countries in Asia, Africa, South America and Caribbean, and Eastern Europe and Ex Soviet Union). The methods used are OLS, 2SLS, and fixed effects regressions. The results show that first, by using OLS and 2SLS, the impact of corruption on per capita GDP is negatively significant. Fixed effects estimation show no impact of corruption on per capita GDP but this is probably due to the short panel as well as measurement error. Second, developing countries have higher impact of corruption on per capita GDP rather than developed countries. Third, looking on across geographical areas, developing countries in Eastern Europe and Ex Soviet Union have the highest negative impact, and then in Asia, Africa, Western and developed countries, and the lowest is in developing countries in South America and Caribbean.

Corvinus Journal of Sociology and Social Policy, 2018

The present study investigates relevant economic, social and political dimensions of development worldwide, focusing on (apparent and latent) links between perceived corruption, economic and human development, government effectiveness and the quality of the political system taken as representative variables of countries' social systems. These variables were selected as the basic determinants of the level of overall development in a country, since combinations of these factors determine clusters of countries with different development patterns. The results of this study indicate that effective development policies require integrated strategies that incorporate efforts to reduce corruption and increase human development and government effectiveness. These strategies are sustainable in the long run when associated with institutional transformations. More specifically, if democracy is not consolidated and the political system is not grounded on the basis of freedom, socioeconomic development cannot be achieved and maintained in the long term, even with a high level of per-capita income.

Quality & Quantity, 2019

The present study investigates the economic, social and political dimensions of development worldwide focusing on the relationship between perceived corruption and income levels, human development, government effectiveness and quality of the political system. The empirical results of this study reveal that these aspects are partly correlated, and feedback relationships are important when assessing socioeconomic development in a comparative perspective. Specific combinations of these factors characterize stable clusters of countries with distinctive economic performances. Effective developmental strategies require measures aimed at boosting income, reducing corruption and stimulating human development and government effectiveness. Empirical results of our analysis also suggest that these strategies are sustainable in the long-run only when associated with institutional transformations, enhancing governance quality. With unstable democracy and ineffective government, socioeconomic development cannot be effectively achieved and maintained on a long-run basis, even under increasing levels of income and wealth. With corruption, wealth is a necessary but not sufficient condition for socioeconomic development.

Corruption takes place when public officials break the law in pursuit of their private interest. But public officials can break different laws in different ways with different implications for the public good. The factors driving corruption and the effects of corruption can therefore vary widely. Understanding the causes and consequences of corruption is particularly important in developing countries, which almost without exception suffer from high levels of corruption. The virtual uniformity of this evidence strongly suggests that developing countries must share some powerful common drivers of corruption that are different from those that affect advanced industrial countries. At the same time, the very diverse economic performance of developing countries suggests that not all developing countries suffer from the same types of corruption. These two observations, summarized in our first section, provide the backdrop to my analytical investigation. I begin this investigation by identifying the drivers of corruption implicit in most conventional neoclassical economic analysis of the topic. Although these drivers are undoubtedly important in many contexts, I next argue that a number of other drivers of corruption may be more important in developing countries. These countries have several critical structural features that are recognized in the broader social science literature but the implications of these features for the economic analysis of corruption have not been adequately developed. We argue that the types of corruption generated by these structural features of developing countries are much less amenable to the types of anti-corruption measures that are prescribed by the conventional analysis of corruption. I then use this analysis to provide an alternative classification of types of corruption in developing countries and suggest that policy has to be appropriate to the drivers of corruption most relevant in particular countries. The implications of this analysis for anti-corruption strategies in developing countries are discussed in the final section.

isara solutions, 2017

Corruption is a widespread phenomenon affecting all societies to different degrees, at different times and it is considered as major obstacle in economic development. This paper studies the empirical literature on the sources of corruption. Due to data availability for the OECD countries I am able to produce cross-country econometric model to test hypothesis of corruption determinants. This study takes into consideration various determinants of corruption for 32 countries using panel data for the period 2010 to 2014. In examining various hypothesis this study attempts to answer whether first corruption is lower in countries with higher economic growth rate or not. The second hypothesis is whether schooling (education) has any impact on corruption or not? Third is whether a county in which unemployment is more also has more corruption. Fourth is to find out the relation between trade openness and corruption. Fifth is political instability leads to more corruption in country or not. Sixth is whether strong governance indicators (voice and accountability, government effectiveness, regulatory quality, rule of law) lead to less corruption in a country or not?

European Journal of Political Economy, 2021

The paper analyzes the strong but complex relation between corruption and development. The corruption/honesty index is explained by three variables measuring aspects of development: Income, Polity and Fraser (for Economic Freedom). The last two indices represent the political and the economic system. Two problems arise: (i) Development is a common factor in all four variables, giving the variables strong confluence, so it is difficult to sort out the contribution of each explanatory variable. However, kernel regressions on the corruption/income scatter give a well-defined long-run transition path, which permits an identification of the specific contributions of institutions to corruption. (ii) The correlation of corruption to the first difference of the three development variables is negative. This gives a substantial lag in the corruption/income relation in the form of wide J-curves, but the main direction of causality is still from development to corruption. High income and modern institutions cause low corruption after some time. The corruption/development-relation is a fuzzy but strong long-run connection.

Review of Development Economics, 2012

Most people today would argue that corruption is bad for countries' economic development. Yet, we still lack a reliable empirical estimate of the effect. This study addresses the econometric shortcomings of the literature and provides an estimate of the causal impact of corruption on gross domestic product per capita across countries. Certain dimensions of a country's culture are used as instruments for corruption. These instruments stay strong when the other deep determinants of economic development, geography, and the remaining dimensions of institutions and culture are controlled for. In the process of choosing controls, however, the entire set of variables available in the Quality of Governance online database (QOG) that includes all central variables from the literature on institutions and culture are included. It is found that corruption does exert a significant and negative impact on countries' productivity levels.

SSRN Electronic Journal, 2012

This paper presents a review of corruption's consequences and causes. Among the consequences are a reduction in economic efficiency, a diminution of capital formation and ultimately a slowdown in economic growth. In addition, income inequality becomes worse. Corruption's causes are numerous: economic, cultural, ethnic, social, religious and gender factors. Corruption-reduction programs, such as liberalization, privatization and reducing the benefit-cost ratio of corruption, can reduce corruption but only if implemented carefully and transparently.