Growth and development under different corruption regimes

Abstract

This paper explicitly models four different corruption regimes according to the way in which corruption is practised. It distinguishes between organized and disorganized, collusive and non‐collusive corruption. The implications of these are compared and contrasted to provide ranking regarding their impacts on growth. Corruption is always bad, but the extent of the detrimental effect on growth is sensitive to the corruption regime observed. The least (or most) damaging regime is the one in which corruption is both organized and collusive (or disorganized and non‐collusive), as broadly characterizes the situation in China and its fast‐growing neighbours (or some African countries). An effective anti‐corruption policy should focus on fighting embezzlement and discretionary rent‐seeking first, which will dramatically reduce the adverse effect of corruption on growth.

Uncertainty, entrepreneurship, and the organization of corruption

“…Shleifer and Vishny (1993) state that more ethnically diverse countries are likely to form disorganised corruption, which is consistent with the empirical finding in Mauro (1995). Wang (2019) argues that Confucian ethical philosophy is likely to breed organised corruption networks in East Asia, evidenced by similar corruption-growth puzzles observed in relation to most East Asian countries' economic development path. One prominent example is China.…”

“…The factors I have alluded to above are particularly relevant in the context of the East Asian paradox countries as discussed by many others (e.g., Khan, 1998;Rock, 2009;Vial and Hanoteau, 2010;Wang, 2019;Wedeman, 2012). China, Indonesia, South Korea and Thailand experience high-corruption and high-growth economies in which organised corrupt activities have thrived.…”

The effects of public expenditures on labour productivity in Europe

“…Therefore, it is wiser to position this type of spending at the level of the central government, though undoubtedly, corruption and economic crimes at the level of the central government must be accounted for. However, it has been noted that more centralised corruption is less detrimental to economic growth (Wang 2020).…”