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Why Is a High Degree of Corruption Compatible with Growth in Some Countries but Not Others?

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Autor:   •  January 10, 2017  •  Research Paper  •  3,374 Words (14 Pages)  •  83 Views

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Why is a high degree of corruption compatible with growth in some countries but not others?

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        Corruption is a global issue that crosses the national boundaries. Every economy is fighting against corruption to some extent around the globe. The general belief regarding corruption is that it is the major reason for the distortion of resource allocation for economies because most of the capital that could have been used for the development of the economy is diverted to the pockets of corrupts officers (Svensson, 2003). It is generally agreed that fortune of an economy is shaped by the quality of governance; corruption is the end-product of bad quality governance which eventually leads to inefficient resource allocation that hinders the growth in the economy. There is large empirical evidence present by numerous researchers stating that corruption adversely impacts the growth of economy (Keefer and Knack, 1997; Li, Xou and Zou, 2000; Li and Filer, 2007; Sachs and Warner, 1997). Some of the identified methods by researchers through which corruption plays a pivotal role include reduction in rates of investment, distortion in allocating public expenditures, decline in foreign direct investment and most importantly, by hindering the business operations in the country.

        All the evidence presented pointed towards corruption as a sign of underdevelopment (Svensson, 2005). Recently, media has exposed certain cases involving high level of corruption. Though, these scandals point out that corruption would act as an obstacle in the growth of economy; certain cases especially in the Asian countries have been witnessed where the highly corrupt political system has actually experienced tremendous growth (Wang, 2015). Considering this fact, no absolute relationship can be identified amongst the economic growth and corruption level in the country. In fact, despite high levels of corruption, some economies tend to thrive while others may not. This paper sheds light on the disputed relation between both corruption and economic growth by identifying certain reasons behind the positive or negative relation in an economy.

        Corruption has been defined as those illegal actions which those having authority carry out by misusing their power. Generally, corruption is referred to the use of power by the public office for private interest and gain. When considering how corruption impacts the economic growth in countries, mixed evidence has been identified (Svensson, 2005). If the relationship is found using level of corruption and the per capita income in the country, then a negative relationship suggests that the countries with lower per capita income tend to be corrupt which means that only poor countries should have corruption as the prevailing issue. On the contrary, if the relationship between level of corruption and growth rate of economies is taken into consideration, a very interesting conclusion is reached: the rate of growth more diverging among the countries that experience high levels of corruption. There is no consistent data that seems to suggest that there is a very strong positive relation; rather, some countries enjoy rapid economic development despite the high level of corruption whereas, some corrupt countries have lower rates of growth in their economy.

        In some countries specially the developing countries, corruption does have some positive impact on the economic growth. Chris Blattman, the associate professor of political science at Columbia University wrote: "Most of us fail to imagine that corruption can also grease the wheels of prosperity. Yet in places where bureaucracies and organizations are inefficient (meaning entrepreneurs and big firms struggle to transport or export or comply with regulation), corruption could improve efficiency and growth. Bribes can act like a piece rate or price discrimination, and give faster or better service to the firms with highest opportunity cost of waiting" (Matthews, 2014). 

        There is no denying that all societies consider corruption to be illegal at least phenomenally everyone does. With trust, cooperation is promoted which is the key to economic performance; and so, in the case of bribery, there is also the presence of trust between the briber and the corrupt official. Actually, trust is one of the most significant factors in the relationship of bribery and corruption (Uslaner, 2012). When corruption takes place on a larger scale like at the government level and the contracts and projects are worth hundreds of millions of dollar, the briber and official must have a very strong relation of trust because this illegal relationship does not actually have any legal protection and the deal only takes place on the basis of trust.

        To provide an answer to this varying impact of the corruption on different countries, some researchers use the efficiency enhancing argument for corruption. Under this argument, the researchers believe that bribe is used as a lubricating source in the rigid political and economic environment so that regulations can be circumvented to help the progress in the economy (Li and Wu, 2010). But this argument again does not explain why this tactic is more helpful in some economies and not applicable in others. One of the possible reasons could be the trust of the public; the countries where level of public trust is higher, the corruption may act as efficiency-enhancing whereas in other countries that lack in public trust, corruption deters the growth of economy (Uslaner, 2012). The absence of trust means higher risk of blackmailing or breach of deal for the official that may even lead to losing job.

        To explore how trust plays a critical role in corruption, example of two societies can be taken. There is high level of trust among the general public in society 1 which makes it easier for the officials to accept bribes from all strangers too since there is minimum chance of being turned in by the person offering bribe. With the prevalence of trust among the public, the corruption takes place easily as there is no issue of cancellation of deal from both ends. So, the market of bribe is both extensive as well as efficient in society 1 and the corrupt officers make deal with the person giving the highest bribe and so, the efficiency-enhancing element of corruption takes place. On the other hand, the people in society 2 have low levels of trust among each other and the high suspicion hinders the corrupt officials to accept bribe from strangers; the bribe-dealing only takes place among long-time friends, and relatives whom they can fully trust. Since, the factor is trust is present in these relations; the time lag between delivery of service and payment is not a major issue. But in the case of strangers, neither the briber is willing to risk by paying first nor does the official agree to take initiative until the payment is given because of the lack of trust on each other. Further, the deal is also not easily closed because there is a risk that the stranger might turn in the official after giving the bribe. If the officials gain full control and corruption is widespread in the society, it becomes easier for the officials to control the resources. In such a society, high levels of corruption become predatory where the bribe is forced out of the private firms and citizens with no valuable benefit in return.

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