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Between two evils: Investors prefer grand corruption!

  • Graf Lambsdorff, Johann
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    Recent empirical studies claim that, in addition to levels of corruption, investors are deterred by its unpredictability. I claim instead that it is petty corruption that deters investors. I employ seven subcomponents of corruption for a sample of 102 countries that appear in the 2003 Global Competitiveness Report of the WEF. The second principal component of this data depicts a grand, political type, embracing corruption in government policymaking and in judicial decisions as opposed to corruption in public utilities and loan applications. Grand corruption less deters investors because they might feel belonging to an inner circle of insiders that can profit from hidden arrangements. Grand corruption also entails relatively smaller organizational effort.

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    Paper provided by University of Passau, Faculty of Business and Economics in its series Passauer Diskussionspapiere, Volkswirtschaftliche Reihe with number V-31-05.

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    Date of creation: 2005
    Date of revision:
    Handle: RePEc:zbw:upadvr:v3105
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    1. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    2. repec:tpr:qjecon:v:110:y:1995:i:3:p:681-712 is not listed on IDEAS
    3. Sanjeev Gupta & Hamid Davoodi & Rosa Alonso-Terme, 2002. "Does corruption affect income inequality and poverty?," Economics of Governance, Springer, vol. 3(1), pages 23-45, 03.
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    5. Kwabena Gyimah-Brempong, 2002. "Corruption, economic growth, and income inequality in Africa," Economics of Governance, Springer, vol. 3(3), pages 183-209, November.
    6. Mauro, Paolo, 1998. "Corruption and the composition of government expenditure," Journal of Public Economics, Elsevier, vol. 69(2), pages 263-279, June.
    7. Mo, Pak Hung, 2001. "Corruption and Economic Growth," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 66-79, March.
    8. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
    9. Erwin Tiongson & Hamid Reza Davoodi & Sanjeev Gupta, 2000. "Corruption and the Provision of Health Care and Education Services," IMF Working Papers 00/116, International Monetary Fund.
    10. Grossman, Herschel I. & Noh, Suk Jae, 1994. "Proprietary public finance and economic welfare," Journal of Public Economics, Elsevier, vol. 53(2), pages 187-204, February.
    11. Paldam, Martin, 2001. "Corruption and Religion Adding to the Economic Model," Kyklos, Wiley Blackwell, vol. 54(2-3), pages 383-413.
    12. Lambsdorff, Johann Graf, 2002. "Making corrupt deals: contracting in the shadow of the law," Journal of Economic Behavior & Organization, Elsevier, vol. 48(3), pages 221-241, July.
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