During the last decades, corruption became an important topic. About twenty years ago the issue started to gain increasing attention. Different Organization engage in the fight against corruption. This is a remarkable change compared to the situation before the 1990s. Back then, most people did not see it as a pressing problem. Actually, it was more seen as an integral part of doing business. Most European countries allowed for tax deductibility of bribes. Even the World Bank, not constricted by such national concerns, was avoiding the topic.
The changed perception of corruption has manifold reasons. Foremost, the geopolitical situation changed remarkably. During the cold war, governments, despite their corruptness, were supported to make sure they were not joining the communist bloc. After the end of this ideological competition, the imperative to tolerate and not to address issues like corruption and abuse of political power ceased to exist. Last, but not less important, the USA, not constraint by geopolitical considerations, had economic interest to put the topic on the agenda. While for US-companies bribing abroad was forbidden, most other developed countries used graft to initiate business abroad. Therefore, the US had a special interest to push for anti-corruption laws to level the playing field for its companies.
From a western normative and moral point of view this fight against corruption on the international level seems to be a desirable development. However, if those were the only reasons for this crusade, it could be misperceived as another example of the imposition of rules from the Global North on the Global South. Then again, if corruption has negative impacts, other than moral concerns, it would legitimize this movement. Prevailing corruption might influence the development and economic performance of a country. In today`s perception development and economic performance includes a variety of indicators, which improve people`s quality of life.
Therefore, after having narrowed the definition of corruption as it is understood within this paper, the correlation between corruption and some of those indicators will be examined. After this basic assessment, the relationship between economic growth, as one of the indicators for development, and corruption shall be illuminated closer. The question, whether there is a causal relationship and what the channels of this connection are shall be explored.
Table of Contents
1. Introduction
2. Definition of corruption
3. The impact of corruption on development and economic performance
4. The impact of corruption on growth
5. The channels of transmission
5.1. The impact of corruption on private investment
5.2. The impact of corruption on public expenditure
5.3. The impact of corruption on the human capital accumulation
5.4. The impact of corruption on productivity
6. Conclusion
7. List of References
Objectives and Core Themes
This term paper explores the relationship between corruption and economic development, specifically examining how corrupt practices influence economic performance and growth across different countries. The central research question investigates whether there is a causal link between corruption and stunted economic development and through which specific channels this negative impact is transmitted.
- Analysis of the historical shift in the global perception of corruption.
- Examination of the correlation between the Corruption Perception Index (CPI) and indicators like GDP per capita.
- Investigation of the impact of corruption on private investment and foreign direct investment (FDI).
- Evaluation of how corruption distorts public expenditure and undermines human capital accumulation.
- Assessment of the link between corruption and national productivity levels.
Excerpt from the Book
4. The impact of corruption on growth
Corruption could impact growth in manifold ways. Some theories predict that corruption enhances efficiency and has a positive impact on economic growth. Here, bribes are seen as a tool to "grease the wheels". To arrive at this conclusion, a second best world is assumed. Government regulations are seen as ineffective and administrative processes as slowing down economic activity. Some researchers have shown in theoretical models that graft can speed up the processes in else sluggish institutions. Further, the possibility of collecting bribes may be seen as additional payment to government servants. Hence, some able workers that would otherwise opt for another career may apply for a government position and therefore, overall productivity of government services is increased. Likewise, bribes could work similar as piece rate wages and therefore, increase the efficiency of civil servants.
Further, if a government is discriminating against minorities or has a negative attitude towards entrepreneurship, corruption might limit the negative consequences of such inefficient regulations. Nonetheless, those possible positive effect of corruption only occur, when there is already an inefficiency, namely a defective government (Meon and Weill, 2008: 4f). Looking at corruption from a more dynamic perspective the positive effect of corruption on growth can be dispelled. Kaufmann observed that government officials have an enormous amount of discretion about the creation, proliferation and interpretation of regulations and laws. The possibility of getting bribed for helping people to get around certain regulations, may act therefore as an incentive to enact more regulations to increase the amount of bribes. Hence, corruption, seen over time, can add to the amount of governmental hurdles for business and therefore might damage growth (Kaufmann, 1997: 115). Besides those theoretical considerations, looking at the empirical figures one has to doubt the positive link between growth and corruption.
Summary of Chapters
1. Introduction: Outlines the historical shift in the perception of corruption and sets the stage for analyzing its influence on development and economic performance.
2. Definition of corruption: Establishes a common understanding of corruption as the abuse of public power for private gain.
3. The impact of corruption on development and economic performance: Uses empirical data to highlight the correlation between corruption levels and various development indicators.
4. The impact of corruption on growth: Evaluates conflicting theories, including the "grease the wheels" hypothesis, against empirical findings of a negative correlation.
5. The channels of transmission: Provides an in-depth look at how corruption negatively impacts specific sectors, including private investment, public expenditure, human capital, and productivity.
6. Conclusion: Summarizes the evidence demonstrating that corruption is a significant obstacle to economic growth and suggests that fighting it is essential for development.
Keywords
Corruption, Economic Growth, Development, GDP, Private Investment, Foreign Direct Investment, Public Expenditure, Human Capital, Productivity, Rent-Seeking, Governance, Corruption Perception Index, Institutions, Economic Performance, Public Sector.
Frequently Asked Questions
What is the primary subject of this paper?
The paper examines the multifaceted impact of corruption on global economic development and national economic performance.
What are the central thematic fields covered in this study?
The study centers on the correlation between corruption and economic growth, public sector efficiency, investment climates, and long-term developmental outcomes.
What is the core objective of the research?
The goal is to determine if corruption causes poor economic performance and to identify the mechanisms, or transmission channels, through which this negative impact occurs.
Which scientific methods are employed in this analysis?
The paper utilizes a synthesis of existing literature, theoretical economic modeling, and an analysis of empirical data—specifically correlating the Corruption Perception Index (CPI) with economic indicators.
What topics are discussed in the main body of the work?
The main body focuses on the negative impacts of corruption on private investment, the distortion of public spending, the depletion of human capital, and the reduction of productivity.
How would you summarize the paper using keywords?
The paper is characterized by terms such as corruption, economic growth, rent-seeking, public expenditure, FDI, and governance.
What is the "grease the wheels" hypothesis mentioned in the text?
It is the theoretical argument that corruption could potentially increase efficiency in an environment of excessive, ineffective regulation by allowing private actors to bypass bureaucratic hurdles through bribery.
Why does the author conclude that corruption negatively affects human capital?
The author argues that in corrupt systems, government spending is often diverted away from essential sectors like education and health toward inefficient, large-scale projects that offer more opportunities for extracting bribes.
How does corruption impact foreign direct investment (FDI) specifically?
Corruption increases uncertainty and risk, which deters long-term, high-tech investment and encourages investors to focus on short-term projects or seek local partners to manage corruption-related hurdles.
What conclusion does the author reach regarding the fight against corruption?
The author concludes that because corruption undermines development and economic stability, international institutions and governments are justified in prioritizing anti-corruption efforts as a core component of economic policy.
- Quote paper
- Daniel Detzer (Author), 2010, The impact of corruption on development and economic performance, Munich, GRIN Verlag, https://www.grin.com/document/153649
