Corruption, economic growth, and income inequality in Africa

This paper uses panel data from African countries and a dynamic panel estimator to investigate the effects of corruption on economic growth and income distribution. I find that corruption decreases economic growth directly and indirectly through decreased investment in physical capital. A unit increase in corruption reduces the growth rates of GDP and per capita income by between 0.75 and 0.9 percentage points and between 0.39 and 0.41 percentage points per year respectively. The results also indicate that increased corruption is positively correlated with income inequality. The combined effects of decreased income growth and increased inequality suggests that corruption hurts the poor more than the rich in African countries. Received: March 19, 2001 / Accepted: December 14, 2001 RID="*" ID="*" An earlier version of this paper was presented at the first AmFiTan International Conference on Development Ethics in February 2000, Dar er Salaam, Tanzania. I thank two anonymous referees of this Journal for helpful suggestions. I am, however, solely responsible for any remaining errors.     

Sounding the alarm: Impact of political instability on growth and fiscal health of the Indian economy

A noticeable change evident in the Indian political scenario since the eighties has been a sharp rise in the frequency with which governments have been ousted out of power. This augurs well for Indian democracy as it reflects a ‘political awakening’. Such changes in government, after an election reflect ‘orderly’: transfer of power and are inherent to the democratic form of governance. However, a close scrutiny of the political scenario at the state government level shows that there have been very frequent changes in government between elections. A high frequency of changes in government could be expected to result in frequent reversals or modifications in policy decisions and have a destabilizing effect on the economy. The present study is an empirical exercise undertaken at the level of state governments. It makes a first attempt to examine the impact of political instability on growth and on the fiscal health of the Indian economy. Received: September 25, 2000/Accepted: January 11, 2002 RID="*" ID="*" Sincere thanks to Professors Ajit Karnik and Abhay Pethe for their comments and suggestions. I would also like to thank the two anonymous referees for their insightful comments and suggestions, which have been of great help. The usual disclaimer applies.     

How municipalities react to budgetary windfalls

Using a panel of 308 observations over the period 1989–1996, we analyse how Flemish municipalities react to budgetary shocks. We address two questions: whether governments respond differently to tax than to grant windfalls and whether responses to positive and negative shocks are symmetric. Our results confirm the recent findings on U.S. local governments that reveal asymmetric responses to positive and negative windfalls. We also find evidence of different responsiveness to tax and grant windfalls. Received: November 2000 / Accepted: September 2001 RID="*" ID="*" We thank Roger H. Gordon, Stanley Winer and participants of the 1998 EEA meeting in Berlin where a previous version of this paper was presented for stimulating comments.     

Pre-assigned rents and bureaucratic friction

In this paper we study the endogenous determination of bureaucratic friction in a bureaucratic contest with () and without (n = 1) rent contestability. When n= 1 bureaucratic impediments induce the individual to undertake rent-securing activities at the same level as in the two-player rent-seeking contest. However, under rent contestability the bureaucracy no longer serves as a means of extracting resources from the public. The paper concludes with the study of the effect of ‘net costs’ on bureaucratic friction. It turns out that under cotestability the only reason for creating bureaucratic friction is the ‘negative costs’ it incurs while when n = 1 the effect of the bureaucrat's net costs of generating bureaucratic friction on the optimal degree of such friction is ambiguous. Received: October 30, 2000 / Accepted: December 28, 2001 RID="*" ID="*" The authors are grateful to two anonymous referees for their valuable comments     

Growth, public investment and corruption with failing institutions

Corruption is thought to prevent poor countries from catching up with richer ones. We analyze one channel through which corruption hampers growth: public investment can be distorted in favor of specific types of spending for which rent-seeking is easier and better concealed. To study this distortion, we propose a dynamic model where households vote for the composition of public spending, subject to an incentive constraint reflecting individuals’ choice between productive activity and rent-seeking. In equilibrium, the structure of public investment is determined by the predatory technology and the distribution of political power. Among different regimes, the model shows a possible scenario of distortion without corruption in which there is no effective corruption but the possibility of corruption still distorts the allocation of public investment. We test the implications of the model on a set of countries using a two-stage least squares estimation. We find that developing countries with high predatory technology invest more in housing and physical capital in comparison with health and education. The reverse is true for developed countries.      

Corruption, Growth, and Income Distribution: Are there Regional Differences?

This paper uses panel data from 61 countries at different stages of economic development over a 20-year period to investigate regional differences in the effect of corruption on economic growth and income distribution. Using two measures of corruption, we find that there are statistically significant regional differences in the growth and distributional impacts of corruption. The largest growth impact of corruption is found in African countries while OECD and Asian countries have the lowest growth impact. On the other hand, the largest distributional impact of corruption in found in Latin America. A 10% decrease in corruption increases the growth rate of income by about 1.7% in OECD and Asian countries, 2.6% in Latin American countries, and by 2.8% in African countries. A one standard deviation decrease in corruption decreases the gini coefficient of income distribution (0–1 scale) by 0.05 points, 0.14 points, 0.25 points, and 0.33 points in OECD, Asian, African, and Latin American countries, respectively. The results are robust to various specifications, measurement of corruption, measures of investment, as well as the conditioning variables. The results have interesting policy implications for economic growth, especially in low income countries with high rates of corruption.     

Time series analysis of the nexus among corruption,political instability and judicial inefficiency in Pakistan

The purpose of this study is two folds: firstly, to analyze the direction of causality between corruption and political instability directly and secondly, to determine the causality between corruption and political instability indirectly through judicial inefficiency in Pakistan. The causality between corruption, political instability and judicial inefficiency is tested by applying Toda–Yamamoto Granger causality test. The results show that there is a lack of direct causal relationship between corruption and political instability. However, political instability and corruption cause each other indirectly through judicial inefficiency. The study highlights the critical role of judicial inefficiency leading to an important policy implication.     

Trade intensity,country size and corruption

Abstract. Several authors claim to provide evidence that governmental corruption is less severe in countries where trade intensity is higher or populations are smaller. We argue that theory is highly ambiguous on these questions, and demonstrate that empirical links between corruption and trade intensity – or country size, strongly related to trade intensity – are sensitive to sample selection bias. Most available corruption indicators provide ratings only for those countries in which multinational investors have the greatest interest: these tend to include almost all large nations, but among small nations only those that are well-governed. We find that the relationship between corruption and trade intensity disappears, using newer corruption indicators with substantially increased country coverage. Similarly, the relationship between corruption and country size weakens or disappears using samples less subject to selection bias. Received: July 2001 / accepted: April 2002 We thank Anand Swamy and two anonymous referees for helpful comments and suggestions, Paul Schorosch for able research assistance, and Ray Fisman, Roberta Gatti, Aart Kraay, and Shang-jin Wei for kindly providing data. The conclusions of this paper are not intended to represent the views of the World Bank, its Executive Directors, or the countries they represent.     

CORRUPTION'S DIRECT EFFECTS ON PER‐CAPITA INCOME GROWTH: A META‐ANALYSIS

Corruption is a symptom of weak institutional quality and could have potentially adverse effects on economic growth. However, heterogeneity in reported findings makes it difficult to synthesize the evidence base with a view to test competing hypotheses and/or support evidence‐based policy and practice. To address this issue, we have extracted 327 estimates of corruption's direct effect on per‐capita GDP growth from 29 primary studies, following a peer‐reviewed and pre‐published systematic review protocol. Precision‐effect and funnel asymmetry tests indicate that corruption has a negative effect on per‐capita GDP growth after controlling for publication selection bias and within‐study dependence. However, multivariate meta‐regression analysis results indicate that the overall effect is not robust to inclusion of moderating variables through a general‐to‐specific procedure for model specification. We report that the marginal effect of corruption on per‐capita GDP growth is more adverse when the primary study estimates relate to long‐run growth, are based on low‐income‐country data only, and extracted from journal papers. The effect is less adverse in studies that use the International Country Risk Guide corruption perceptions index and in those reporting estimates from two‐stage least‐squares estimations.     

Does expenditure in public governance guarantee less corruption? Non-linearities and complementarities of the rule of law

Corruption is an endemic societal problem with profound implications in the development of nations. In combating this issue, cross-national evidence supporting the effectiveness of the rule of law seems at odds with poorly realized outcomes from reforms inspired in the academic literature. This paper provides an explanation for such contradiction. By building a computational approach, we develop three methodological novelties into the empirical study of corruption: (1) modeling government expenditure as a more adequate intervention variable than traditional indicators, (2) generating large within-country variation by means of bottom-up simulations (instead of cross-national data pooling), and (2) accounting for all possible interactions between covariates through a spillover network. Our estimates suggest that, the least developed a country is, the more difficult it is to find the right combination of policies that lead to reductions in corruption. We characterize this difficulty through a rugged landscape that governments navigate when changing the total budget size and the relative expenditure towards the rule of law. Importantly our method helps identifying the—country-specific—policy issues that complement the rule of law in the fight against corruption.

     

Central government subsidies to local public goods

We examine the welfare effects of a central government's subsidy for a local public good in a Nash equilibrium model with two types of public goods. We first show that the welfare effect depends on the substitution and evaluation effects. We also investigate the optimal subsidy rate in a second-best framework and explore how the optimal subsidy scheme depends on the relative evaluation of the two types of public goods. Received: August 20, 1998/accepted: February 12, 2002 RID="*" ID="*" We are grateful to John Quigley, Minoru Kunisaki, Tom Panella, Andy Haughwout, Steven Craig, William Hoyt, Michael Ash, Konrad Stahl, Amihai Glazer, David Wildasin and two referees for helpful comments and suggestions, An early version of this paper was presented at a seminar at University of California, Berkeley and at conferences at JAEE Annual Meeting in Japan, North American Meetings of The RSAI in Washington, WSAI conference in Hawaii, Public Choice Meeting in San Francisco.     

A Bayesian-like estimator of the process capability index Cpmk

Pearn et al. (1992) proposed the capability index C_pmk, and investigated the statistical properties of its natural estimator for stable normal processes with constant mean μ. Chen and Hsu (1995) showed that under general conditions the asymptotic distribution of is normal if μ≠m, and is a linear combination of the normal and the folded-normal distributions if μ=m, where m is the mid-point between the upper and the lower specification limits. In this paper, we consider a new estimator for stable processes under a different (more realistic) condition on process mean, namely, P (μ≥m)=p, 0≤p≤1. We obtain the exact distribution, the expected value, and the variance of under normality assumption. We show that for P (μ≥m)=0, or 1, the new estimator is the MLE of C_pmk, which is asymptotically efficient. In addition, we show that under general conditions is consistent and is asymptotically unbiased. We also show that the asymptotic distribution of is a mixture of two normal distributions. RID="*" ID="*"  The research was partially supported by National Science Council of the Republic of China (NSC-89-2213-E-346-003).     

Lobbying contests with alternative instruments

This is a model of a contest where, in order to win, each opponent can use two instruments. The probabilities of winning are explored, as well as the expenditures of the interest groups, and the relative rent-dissipation in both cases where the players have the option to use only one instrument (the standard Tullock contest) and where the players have the option to use two instruments in the contest. We show that the use of two instruments strengthens the player with the higher stake, decreases the relative rent dissipation and it decreases total expenditure if the parties are sufficiently asymmetric. Received: February 23, 2001 / Accepted: March 25, 2002 RID="*" ID="*" We are grateful to two anonymous referees and the editor Kai Konrad, for constructive comments.     

On the negative social value of central banks' knowledge transparency

We examine to what extent central banks should release their internal assessments concerning the links between money growth and future inflation, and between employment and inflation. We show that the social value of knowledge transparency concerning real shocks is negative since the disclosure of the central bank's private information eliminates the possibility of insuring the public against those shocks. Finally, we discuss a number of further arguments which have to be taken into account before policy conclusions can be drawn. First version: August 1998 / Final version: July 2002 RID="*" ID="*" I would like to thank Charles Goodhart, Gerhard Illing, Eva Terberger-Stoy, Volker Hahn, Carl E. Walsh, seminar participants in Frankfurt and Heidelberg and at the annual meeting of the German Economic Association 2000 for helpful comments.     

Corruption, institutions and trade

The economics literature describes various factors that affect trade between countries, which, in addition to the standard economic and geographic factors, also include cultural, ethnic and historical factors. The present study is apparently one of only a few attempts in the literature to examine directly the effects of corruption on trade and the first attempt to examine trade over time in a specific country whose level of corruption changed significantly. Israel was chosen as the subject of the study mainly because of the fact that, according to international indexes, the country’s status as a civil society has declined significantly over the past decade. According to the corruption index of Transparency International, Israel was ranked 33rd in the world, at the end of the sample period in 2008, having fallen from 14th in 1995. The results of the research can serve as the basis for comparison to similar studies of other Western countries. The study’s conclusions support the hypothesis that the effect of corruption on trade of any given country is significant, stable and negative.     

Corruption as Infrastructure: Rendering the New Saigon Global

Corruption is regularly treated as a barrier to infrastructure, development and growth. However, in Saigon, corruption itself has become an infrastructure in Vietnam's late-socialist urban transformation. This infrastructure facilitates not only growth in the form of transnational investment, property speculation and construction, but allows for different kinds of planning and development practice as well. Perceptions about corruption in Vietnam, and in Saigon specifically, shape market and planning practices that structure the terms on which interested parties from abroad and internally speculate upon and ultimately develop urban projects. This is not a static formulation of corruption. Rather, corruption and the various political and policy responses to it constantly shape how brokers, developers and financiers renegotiate how the city becomes a knowable object for investment, legible to the calculations of both risk and reward used by global investors as well as to those who enact the embedded bureaucratic, legal and political practices that create Saigon's built environment. In this article I argue that different definitions and policy responses to corruption in effect create variable ways of seeing the city (as well as modes of being seen) that have an impact on the material realities of the metropolis—the types of connections produced with transnational finance, the legal and regulatory structure under which urbanization unfolds, and the types of players, firms and officials involved.     

Corruption, institutions and regulation

We analyze the effects of corruption and institutional quality on the quality of business regulation. Our key findings indicate that corruption negatively affects the quality of regulation and that general institutional quality is insignificant once corruption is controlled for. These findings hold over a number of specifications which include additional exogenous historical and geographic controls. The findings imply that policy makers can focus on curbing corruption to improve regulation, over wider institutional reform.     

Private law enforcement with competing groups

This paper introduces groups that are in conflict against each other in law enforcement policy. These groups can have an effect on the process of law enforcement by making upfront investments, such as bribes. We also investigate consequences when a policy maker acts to maximize a bribe instead of social welfare. Thus, this paper presents an inclusive framework for incorporating private law enforcement, corruption and avoidance activities. This article shows that this competition can lead to moderate and more efficient law enforcement activities. This indicates that inefficient law enforcement by authority with harm reduction motivation can be avoided. Additionally, this paper shows that depending on the policy maker’s objection between rent-seeking motivation or social welfare maximizer, deterrence effects vary. This paper provides a clear mechanism that the rent-seeking motivated policy maker tends to set less severe enforcement policies than the social welfare level.     

Corruption in transition economies: Effects of government size, country size and economic reforms

This paper uses annual pooled data over 1998–2002 for transition countries to examine whether government size or country size matters more in its impact on corruption; and whether piecemeal reforms or comprehensive transition reforms are desirable for corruption reduction. Our results show that greater economic prosperity leads to lower corruption, and contrary to findings for other nations, a bigger government size seems toreduce corruption in transition nations. The geographic size of a country is positive and significant, suggesting that more spread out countries would have a harder time controlling corruption. Comprehensive transition reforms might work best at corruption reduction. A version of this paper was presented at the Sixth Mediterranean Social and Political Research Meeting of the Mediterranean Programme of the Robert Schuman Centre for Advanced Studies at the European University Institute, Montecatini Terme, March 2005. Comments of participants at the Mediterranean meetings, especially Utku Teksoz, and two anonymous referees are appreciated. Insightful comments by Prof. Vojmir Franicevic on an earlier version and research assistance of Richard Connelly are also appreciated. Remaining errors are our own.