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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.

Suggested Citation

  • Shang-Jin Wei, 1999. "Corruption in economic development - beneficial grease, minor annoyance, or major obstacle?," Policy Research Working Paper Series 2048, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2048
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    References listed on IDEAS

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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 16:37:20

    Citations

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    Cited by:

    1. Cuervo-Cazurra, Alvaro, 2016. "Corruption in international business," Journal of World Business, Elsevier, vol. 51(1), pages 35-49.
    2. repec:idb:brikps:68018 is not listed on IDEAS
    3. 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.
    4. 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.
    5. 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.
    6. Gonzalez, Eduardo T. & Mendoza, Magdalena L., "undated". "Governance in Southeast Asia: Issues and Options," Discussion Papers DP 2002-07, Philippine Institute for Development Studies.
    7. 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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