The Eight Questions About Corruption

THE EIGHT QUESTIONS ABOUT

CORRUPTION


THE EIGHT QUESTIONS ABOUT CORRUPTION

What is corruption?

Corruption can be defined as the use of public goods (usually funds) for private or personal interests. The most interesting case, in what affects economic growth is bribery in order to avoid policy restrictions (commercial, environmental, fiscal, etc..). This can be seen as a tax or feethat governments impose in order to allow a given economic activity, with the difference that it has higher uncertainty (and therefore higher transaction costs) and that the revenue doesn’t end up in the government treasury. It may also be seen as a sort of lobbying activity, but again this parallel isn’t precise. Lobbying typically affects the entire sector since it attains a law or policymodification. Bribery however only acts in favour of a specific firm, and adds problems to competition. These activities can also be seen in the private sector, if firm resources are put to a similar use.

Which countries are more corrupt?

In order to answer this question different indexes have been developed, but they focus on different aspects. One of them looks at firms’ activities andgovernment oficials’ expectation of illegal payments, while another focuses on public perception and tolerance. This last one distinguishes between a country’s level of corruption and the political risk of corruption, being the former a more complete measure. The results of the different indexes are highly correlates, but they show different results due to different samples (both in countries and timespans). Countries that appear most in all indexes are Bangladesh, Equatorial Guinea, Zimbabwe, Nigeria, Myanmar, Indonesia...

What are the common characteristics of countries with high corruption?
* All corrupted countries are developing or in transition, ruled (or have been recently ruled) by a socialist government, generally low income levels and closed economies (except Indonesia).According to certain theories, the role of economic and structural policies and also de role of institutions are the most remarkable determinants of corruption. In the end everything is related to institutions.
* Institutional theories can be divided into two categories: the first though reflects that corruption is attached to education and per capita income, and the second one focusing on the“hospitality” of the colony environment, the kind of legal system implanted in that colony (not the same in all European countries) and also the influence of religion.
* On the other hand, if we take a look to the economic and political part, we can see a restriction of the market (affecting imports and exports) and political competition. The control government exercises on the press to controlvoter’s decisions are a clear example of corruption, provoking an abuse of power.
* A research made to prove corruption theories, cleared out that GDP and human capital stock are closely related to corruption, that it affects the market (imports and exports) and it also affects press´s freedom.

What is the magnitude of corruption?
* Svensson (2003) presents a survey data from Ugandan firms inorder to measure the magnitude of corruption. The outcome results revealed that an 80% of the firms were graft-paying companies (graft is around an 8% of the total costs of the firm) and only a 20% wasn´t.
* Another study, also from Uganda, proved that corruption was also present in public procurement and service delivery programs such as primary schools. From a sample of 250 schools, thatwere supposed to receive funds from the government to scholar material and other expenses, Reinikka and Svensson (2004) realized that schools only received a 13% or even nothing.
* Under prizing is also a fruitful way to infer in the magnitude of corruption, a method used by the Iraq regime to obtain illegal kickbacks from oil buyers.
* How can we relate the magnitude of corruption...