Corruption Analysis

Corruption is a universal curse around the world and all nations suffer to some degree from the devastating effects of corruption. Corruption impedes economic development by creating inefficiencies that significantly reduce a country’s welfare.

There are various definitions regarding corruption ,the most frequently used by social scientist is Nye’s, that corruption is: “…behavior which deviates from the normal duties of a public role because of private-regarding (family, close private clique), financial or status gains; or violates rules against the exercise of certain types of private-regarding influence. This includes such behavior as bribery, nepotism patronage, fraud, embezzlement.” The Oxford Advanced Learner’s Dictionary, (2000) define

Some economists have argued that corruption hampers economic growth because it redirects resources in unproductive direction and creates distortions in the economy (Scheifer and Vishny, 1993), while some others have argued that rather than distracting economic growth, corruption can mitigate the impact of weak institutional and regulatory frameworks. For example, a 2011 paper suggests that corruption increases firm entry rate in the presence of administrative barriers to entry. However, the paper concludes that while corruption can counteract the effect of over-regulation and supports the “grease the wheels” hypothesis under conditions of excessive regulations, it does not necessarily increase economic growth (Dreher and Gassebner

It not only increases cost of domestic investment by introducing uncertainties, reputational risks and vulnerability to extortion but also lowers FDI. Corruption in the form of tax evasion reduces the tax revenue base of a country. For example, by undermining the quality and quantity of health and education services, corruption decreases a country’s human capital. It may lead public officials to allocate public resources less on public welfare than on the opportunity they provide for extorting bribes, such as large infrastructure or defence projects not only affecting economic development but also increases income inequality.(Mauro 1995; Tanzi 1997; Gupta 2000; Gyimah-Brempong 2001; Akcay 2006; Fisman-Svenson 2007; Attila 2008; Nawaz 2010; Zurawicki- Habib 2010; Ugar- Dasgupta 2011; Rothestein- Holmberg 2011)

Tanzi and Davoodi have identified four channels through which corruption affects economic growth, including