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Why is corruption less harmful in some countries than in others?
Empirical evidence shows that not all countries with high levels of corruption have suffered poor growth performance. It is true that many countries have suffered, and continue to suffer, as a result of widespread misgovernance. Yet it is also true that some countries with high levels of corruption have appeared to do little to damage growth prospects. The question is why?Keith Blackburn (University of Manchester) and Gonzalo F. Forgues-Puccio (University of St Andrews) have explored this question, creating 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, firms must acquire complementary licenses from public officials who are able to exploit their monopoly power by demanding bribes in exchange for these permits.
Based on this model, the authors show that the effects of corruption depend on the extent to which bureaucrats coordinate their rent-seeking behaviour. Specifically, their 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. To fight corruption, the paper concludes with several suggestions including paying civil servants more to make bribes less of an incentive. Additionally, they suggest making corruption more risky and costly.
This article was published in the Journal of Economic Behavior & Organization, and selected for Elsevier's FLASH news alerts November 2009.
Click here for abstract and full-text article.