Corruptio And Its Impact On Growth, Business And Government Effectiveness

4290 words - 18 pages

Corruption and its impact on Growth, Business and Government Effectiveness

Ivo Dimovsky Managerial Economics – Empirical paper EMBA - American University of Bulgaria April 4th, 2012


Corruption, like an infection, has co-existed with human society for a long time. Corruption has received significant attention among economists and international financial institutions during the last few decades, given its impact on economic growth both in developed and developing countries. There is an increasing volume of literature on the relationship between corruption and economic growth, and the general conclusion is that corruption slows down the long-term growth of an economy through ...view middle of the document...

2 Government effectiveness - captures perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies. (Official World Bank Metric) – 2011. 3 According to the World Bank WW Economic database, applied to the sub-set of countries in the period of 1960 – 2008.


Corruption has a large significance with its ability to influence and disrupt the roots of an economy. It abrades property rights and has major consequences for both government efficiency and social equity. It severely impacts political institutions and thus also erodes democracy and the social, political, and economic benefits coming from it. It is often done in secret and consequently demolishes the nature of the economic system. The academic literature remains inconclusive however about the impact of corruption on economic prosperity or development. Some early authors argued that corruption has the potential to improve efficiency and even promote and help growth. On the other side, Shleifer and Vishny 4(1993), explain that corruption is detrimental for investment and economic prosperity. Up to this point, however, the empirical evidence has supported the existence of a linear and negative correlation between the level of corruption and the average growth rate of GDP per worker, the government effectiveness as well as the ease of establishing and running a business. There are, of course, many additional factors which play a role in cultivating the level of corruption, like the distinction between “free” and “non-free” countries in the type of their political regime, development level of educational system and many more sub-factors, which, for example, Ehrlich and Lui (1999) apply in their studies. In this paper we seek to prove the significance of the negative impact of corruption to economic growth by studying the empirical results of a regression analysis run over a sub-set of countries,

Shleirfer, Andrei and Rober Vishny. 1993 “Corruption.” Quarterly Journal of Economics


filtered by the economic research department of the World Bank and categorized as “developed” and “developing” samples of states, in general. Please refer to table 1.1 The following section discusses the root causes of corruption and its consequences to economy and society. Section 3, covers the econometric work and the results obtained and, the last section of the paper elaborates on the conclusions and the future dimensions of the problem.

Defining the phenomenon

As surprising as it may seem, definitions of corruption may vary from source to source, culture to culture and economic author to author. Corruption is an often used word, but very rarely correctly defined phenomenon, part of our social life. Corruption or level of corruption is widely used in public...

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