Corruption And Schumpeterian Growth In Different Economic Environments

This paper takes up the phenomenon of corruption and its relationship to growth explicitly in conjunction with overall institutional environment in which it occurs. The literature has pointed out that some forms of corruption are more detrimental to growth, while others can be considered even beneficial, given the underlying regulation. These notions are made more precise in a framework of Schumpeterian growth in “capitalist” and “totalitarian” environments. The analysis shows that corruption in an overall competitive capitalist environment ordinarily is of a transitive nature and is likely to be conducive to economic growth rather than otherwise. On the other hand, in totalitarian environment, corruption, though also possibly conducive to static welfare, becomes deeply entrenched in the socio‐economic system and inevitably leads to a breakdown of the system. That breakdown, in turn, greatly enhances the possibilities for corruption and makes it especially detrimental to the prospects for resumed economic growth.