Why and How to Move from Capturing Perception of to Quantifying Corruption?

Corruption undermines economic development and damages social stability.1 The current literature on corruption comprises of empirical cross-country analyses and surveys demonstrating perceived corruption’s macrolevel harmful impact on economic, political, and social outcomes in a country.2 Corruption impedes income growth of the poor (Gupta and Alonse-Terme 2002; You and Khagram 2005), and corruption reduces productivity within a country (Lambsdoorf 2003b). Outside investors’ perception of corruption may also discourage FDI and other capital inflows (Mauro 1997; Lambsdoorf 2003a; Wei 2000).3 The course of privatization in highly corrupt countries tends to be less efficient than in countries where corruption is controlled; the inefficiency fosters an environment conducive for monopolies (Bjorvatn and Soreide 2005). Researchers have also identified macrolevel characteristics of countries with corruption. Corruption is prevalent in countries that have a large public sector (Mauro 2002);4 have poor governance (Rose-Ackerman 2004); have a low level and a low quality of openness (Gokcekus and Knoerich 2006); and tend to lack political and civil rights (Harms and Ursprung, 2002). Countries with an unstable legal administration and unstable markets support the growth of corruption (Lambert-Mogiliansky 2002).