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Corruption in economic development - beneficial grease, minor annoyance, or major obstacle?

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  • Shang-Jin Wei

Abstract

The author reviews the overwhelming statistical evidence that countries with high levels of corruption experience poor economic performance. Corruption hinders economic development by reducing domestic investment, discouraging foreign direct investment, encouraging overspending in government, and distorting the composition of government spending (away from education, health, and infrastructure maintenance toward less efficient but more manipulable public projects). The World Bank and the International Monetary Fund, among others, define corruption as"the abuse of public office for private gains". Whenever a public office is abused, a public function or objective is set aside and compromised. Only if a public function is unproductive are policy goals unharmed by corruption. But one often hears that bribery greases the machinery of commerce, so the author studied the evidence - which clearly rejects the hypothesis. Culture shapes the difference between a"bribe"and a"gift"but culturally induced differences seem small. There is no evidence to support the notion that corruption in Asia, including East Asia, entails lesser consequences. Corruption can be symptomatic of many social ills so the fight against it must be multifaceted. Laws and law enforcement are indispensable, but countries serious about fighting corruption should also reform government's role in the economy, especially in areas that (by giving officials discretionary power) are hotbeds of corruption. Recruiting and promoting civil servants on the basis of merit and paying them a salary competitive with similar jobs in the private sector helps attract moral, high-quality civil servants. International pressure on corrupt countries, and also to criminalize the bribing of foreign officials by multinational firms, can be useful. But anti-corruption campaigns cannot succeed without reforming domestic institutions in the corrupt countries.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2048.

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Date of creation: 28 Feb 1999
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Handle: RePEc:wbk:wbrwps:2048

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Keywords: Poverty Monitoring&Analysis; Corruption&Anitcorruption Law; Legal Products; Decentralization; Public Sector Corruption&Anticorruption Measures; National Governance; Governance Indicators; Legal Products; Corruption&Anitcorruption Law; Public Sector Corruption&Anticorruption Measures;

References

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  1. Lindbeck, Assar, 1998. "Swedish Lessons for Post-Socialist Countries," Seminar Papers 640, Stockholm University, Institute for International Economic Studies.
  2. Rauch, James E. & Evans, Peter B., 2000. "Bureaucratic structure and bureaucratic performance in less developed countries," Journal of Public Economics, Elsevier, vol. 75(1), pages 49-71, January.
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  4. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 995-1025, November.
  5. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," NBER Working Papers 6030, National Bureau of Economic Research, Inc.
  6. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  7. Paolo Mauro, 1996. "The Effects of Corruptionon Growth, Investment, and Government Expenditure," IMF Working Papers 96/98, International Monetary Fund.
  8. repec:fth:iniesr:498 is not listed on IDEAS
  9. Vito Tanzi & Hamid Reza Davoodi, 1997. "Corruption, Public Investment, and Growth," IMF Working Papers 97/139, International Monetary Fund.
  10. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
  11. Daniel Kaufmann & Shang-Jin Wei, 2000. "Does 'Grease Money' Speed Up the Wheels of Commerce?," IMF Working Papers 00/64, International Monetary Fund.
  12. International Monetary Fund, 1997. "Corruption and the Rate of Temptation," IMF Working Papers 97/73, International Monetary Fund.
  13. Bliss, Christopher & Di Tella, Rafael, 1997. "Does Competition Kill Corruption?," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1001-23, October.
  14. Vito Tanzi, 1998. "Corruption Around the World: Causes, Consequences, Scope, and Cures," IMF Staff Papers, Palgrave Macmillan, vol. 45(4), pages 559-594, December.
  15. Ades, Alberto & Di Tella, Rafael, 1997. "National Champions and Corruption: Some Unpleasant Interventionist Arithmetic," Economic Journal, Royal Economic Society, vol. 107(443), pages 1023-42, July.
  16. Lui, Francis T, 1985. "An Equilibrium Queuing Model of Bribery," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 760-81, August.
  17. Sanjeev Gupta, 1998. "Does Corruption Affect Income Inequality and Poverty?," IMF Working Papers 98/76, International Monetary Fund.
  18. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
  19. Cheryl W. Gray & Daniel Kaufman, 1998. "Corruption and Development," World Bank Other Operational Studies 11545, The World Bank.
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Blog mentions

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  1. Afghanistan's opium output: what problem?
    by chris dillow in Stumbling and Mumbling on 2006-09-04 11:37:20
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Cited by:
  1. Gonzalez, Eduardo T. & Mendoza, Magdalena L., . "Governance in Southeast Asia: Issues and Options," Discussion Papers DP 2002-07, Philippine Institute for Development Studies.
  2. Hellman, Joel S. & Jones, Geraint & Kaufmann, Daniel & Schankerman, Mark, 2000. "Measuring governance, corruption, and State capture - how firms and bureaucrats shape the business environment in transition economies," Policy Research Working Paper Series 2312, The World Bank.
  3. repec:idb:brikps:68018 is not listed on IDEAS
  4. Aida Isabel Tavares, 2004. "The socio-cultural and political-economic causes of corruption: a cross-country analysis," Working Papers de Economia (Economics Working Papers) 19, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
  5. McAllister, Ryan R.J. & Smajgl, Alex & Asafu-Adjaye, John, 2007. "Forest logging and institutional thresholds in developing south-east Asian economies: A conceptual model," Forest Policy and Economics, Elsevier, vol. 9(8), pages 1079-1089, May.
  6. Hellman, Joel S. & Jones, Geraint & Kaufmann, daniel, 2000. ""Seize the state, seize the day": state capture, corruption, and influence in transition," Policy Research Working Paper Series 2444, The World Bank.

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