The impact of corruption on growth and inequality

Filed under - Poverty and development

Published on 15 March 2014 as a EU Helpdesk answer
Could you please provide me with counter-arguments, evidence as well as possible case studies, which refute the value of corruption as a positive economic force?

Note

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Content

1. Corruption has a corrosive impact on growth and business operations
2. Corruption affects inequality and income distribution
3. Corruption affects the overall governance and business environment
4. References

Summary

While there is a large consensus in the literature on the negative impact of corruption on economic growth, some researchers continue to argue that the effect of corruption on growth is context specific and associated with factors such as the country’s legal and institutional framework, quality of governance and political regime. They conclude that, in some highly regulated countries that do not have effective government institutions and governance systems, corruption can compensate for red tape and institutional weaknesses and “grease the wheels” of the economy.

This argument does not stand up to scrutiny when looking at the long-term corrosive impact of corruption on economic growth, equality and the quality of a country’s governance and institutional environment. Evidence indicates that corruption is likely to adversely affect long-term economic growth through its impact on investment, taxation, public expenditures and human development. Corruption is also likely to undermine the regulatory environment and the efficiency of state institutions as rent-seeking distorts incentives and decision-making processes.

Not only does corruption affect economic development in terms of economic efficiency and growth, it also affects equitable distribution of resources across the population, increasing income inequalities, undermining the effectiveness of social welfare programmes and ultimately resulting in lower levels of human development. This, in turn, may undermine long-term sustainable development, economic growth and equality.

Author(s): Marie Chêne, Transparency International, tihelpdesk@transparency.org
Reviewed by: Robin Hodess, Transparency International
Publication date: 15 March 2014
Number: 1414

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Country / Territory - International   
Region - Global   
Language(s) - English   
Topic - Governance   |   Poverty and development   |   Private sector   
Tags - Taxes   |   economic growth   |   inequality   

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