Corruption in Economic Development: Beneficial Grease, Minor Annoyance, or Major Obstacle?

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.