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Why is Corruption Less Harmful in Some Countries Than in Others?

  • Keith Blackburn
  • Gonzalo F. Forgues-Puccio

Empirical evidence shows that not all countries with high levels of corruption have su¤ered poor growth performance. Bad quality governance has clearly been much less damaging (if at all) in some economies than in others. Why this is so is a question that has largely been ignored, and the intention of this paper is to provide an answer. We develop a dynamic general equilibrium model in which growth occurs endogenously through the invention of new goods based on research and development activity. For such activity to be undertaken, ?rms must acquire complementary licenses from public officials who are able to exploit their monopoly power by demanding bribes in exchange for these (otherwise free) permits. We show that the effects of corruption depend on the extent to which bureaucrats coordinate their rent-seeking behaviour. Speci?cally, our analysis predicts that countries with organised corruption networks are likely to display lower levels of bribes, higher levels of research activity and higher rates of growth than countries with disorganised corruption arrangements..

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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 88.

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Length: 25 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:man:cgbcrp:88
Contact details of provider: Postal: Manchester M13 9PL
Phone: (0)161 275 4868
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