Corruption affects the functioning of society in a number of ways. Many studies suggest it hampers economic growth. For example, corruption may reduce investment by increasing the required return. On the other hand, corruption may also have a positive economic impact through facilitating financial transactions if, for example, the legal system does not function particularly well.
Several research projects exploring the causes and consequences of corruption are currently under way at BOFIT. The results of these studies will be published this year in the BOFIT Discussion Paper series.
A study entitled ‘Exports and Corruption: A Disaggregated Examination’ by Rajeev K Goel and Iikka Korhonen looks at the relationship between the structure of exports and corruption in more than 130 countries. The study assumes that the raw material base of each country is reflected in both the structure of exports and corruption. Countries export products in which they have a relative advantage. It has been frequently noted that a large oil sector in the economy seems to increase corruption. Pumping oil from the ground is an activity that is relatively easy to supervise and requires a considerable number of official permits in most countries. This factor alone can easily contribute to corruption. In addition, struggles over the use of oil revenues seem to heighten the sensitivity of political systems to corruption. This study examines how the share of total exports taken by different products correlates with corruption. It certainly appears to hold true that the more a country exports oil, the more corrupt its economy will be. At the same time, exports of agricultural products would seem to reduce corruption. Freedom in economic and political decision-making reduces corruption, as can be expected. It also appears that the corruption-inducing effect of energy products is the greatest in countries where corruption already plays a major role. It would thus appear that particularly countries dependent on exports of energy products should pay attention to the issues of political and economic freedom if they wish to reduce corruption.
A different perspective on corruption is offered in a study by Pierre-Guillaume Méon and Laurent Weill entitled ‘Is corruption an efficient grease?’ The authors look at the impact of corruption on economic efficiency in 54 developed and developing economies. Their study shows that the impact of corruption on economic efficiency, and thereby on the standard of living, is not necessarily straightforward. If the institutional structures of a country are not highly developed, corruption may in fact boost economic activity, because companies do not have to use so much time and resources on complying with complicated and conflicting rules and regulations. It must be noted, however, that in countries with developed institutions corruption always appears to lessen the efficiency of the economy. In addition, it is of course possible that it is beneficial for authorities in less developed countries to keep the permit procedure complicated, as this allows them to increase their personal income.
In conclusion, the relationship between corruption and economic efficiency is not always simple. This notwithstanding, it appears that most countries would benefit from reducing corruption or at least developing their institutions in such a way that corruption is not needed to address their deficiencies. |