Bribery in the Economies: Grease or Sand?

“Control corruption” was one of the major policy prescriptions made to nations recently in crisis. Yet statements about corruption like those quoted above are all read or heard from time to time, and it is probably feasible to find some anecdotes to support any or all of these possibly mutually inconsistent hypotheses. So there appear to be examples of value-creating corruption (as the second quote suggests) as well as value-destroying corruption. However, there is a limit to what anecdotes can tell us. What does a careful examination of facts and data tell us? This paper reviews recent studies on the consequences of corruption on economic development.

There are some very good survey papers on corruption issues, for example, those by Andvig (1991), Bardhan (1997), Kaufmann (1997b), UNDP (1997), and Tanzi (1998). This paper has several features. First, it reviews more recent empirical studies on the subject that include those that rely on cross-country regressions and a few that use firm-level observations. Second, wherever possible, it uses examples Asian examples to explain the results in non-technical ways. This paper is organized in the following way. Section 1 discusses how cross-country difference in corruption may be measured. Section 2 reviews the evidence on economic consequences of corruption based on cross-country regressions. Section 3 discusses the evidence that is based on firm-level observations. Section 4 discusses the notion of cultural difference in the consequences of corruption. Section 5 discusses factors that may contribute to the different extent of corruption in different countries, and possible remedies to the problem. Section 5 provides some concluding thoughts.