Why is corruption less harmful in some countries than in others?

Abstract

Empirical evidence shows that not all countries with high levels of corruption have suffered poor growth performance. Bad quality governance has clearly been much less damaging (if at all) in some economies than in others. Why this is so is a question that has largely been ignored, and the intention of this paper is to provide an answer. We develop a dynamic general equilibrium model in which growth occurs endogenously through the invention of new goods based on research and development activity. For such activity to be undertaken, firms must acquire complementary licenses from public officials who are able to exploit their monopoly power by demanding bribes in exchange for these (otherwise free) permits. We show that the effects of corruption depend on the extent to which bureaucrats coordinate their rent-seeking behaviour. Specifically, our analysis predicts that countries with organised corruption networks are likely to display lower levels of bribes, higher levels of research activity and higher rates of growth than countries with disorganised corruption arrangements.

Political stability, corruption and trust in politicians

“…16 For φ = 0 social incentives do not influence a politician's choices, while for φ > 0 a politician's optimal decisions are affected by his social preferences. Furthermore, the larger is φ, the more important becomes a politician's social incentives for tax-redistribution,ṽ(R), relative to his personal incentives for simply gaining felicity from his own net income.…”

“…Other studies on corruption include Uslaner [54], who regresses trust on corruption and finds a negative correlation; openness and corruption (Ades and Di Tella [1], Treisman [53], Baksi et al [8]); coordinated rent-seeking behavior and corruption (Blackburn and Forgues-Puccio 5 [16]); corruption and economic growth (Mauro [42]). …”

Context, law and reinvestment decisions: Why the transitional periphery differs from other post-state socialist economies

“…For example, there is evidence to suggest that firms which interact more extensively with public sector institutions and are subject to a higher bureaucracy burden and more inspections, are likely to bribe more (Nur-Tegin & Sahin, 2013). However, where bureaucrats co-ordinate and organise their activities, bribery levels are lower (Blackburn & Forgues-Puccio, 2009). This finding supports the 'grabbing hand' perspective which emphasises the negative impact arising from the unpredictability associated with independent bureaucrats soliciting bribes in pursuit of their own agendas (Frye & Shleifer, 1997;Shleifer & Vishny, 1998).…”

The Politics of Growth: Can Lobbying Raise Growth and Welfare?

“…This last argument follows , who suggest that government officials are monopolists over a type of good, in our case R&D licences, without which the private sector cannot pursue their own economic activity, and exert their monopoly power by demanding bribes from private agents in exchange for those licences. 7 A direct application of these arguments to economic growth can be found in Blackburn and Forgues-Puccio (2007), who consider that firms must acquire permits from corrupt public officials in order to pursue their private, growth enhancing, activities.…”

“…10 In particular, Angeletos and Kollintzas (2000) and Blackburn and Forgues-Puccio (2007) analyze the effects of rent-seeking on economic growth, but impose a constant market structure, and rely on the standard rent-seeking technology (blackbox approach) to model the interaction between economic agents. Brou and Ruta (2007) introduce an endogenous market structure, but their results depend on a rent-seeking technology modeled in the wrong direction, i.e., where firms lobby the government in exchange for contributions, which are financed by taxing consumers.…”