U4 Helpdesk Query

U4 helpdesk reply

Part I: Measuring Corruption (and any changes) in a particular country over time

Despite the numerous comparative surveys available, the question you raised in your query with regard to measuring corruption in a particular setting over time is very valid and important. This area is rather under-researched and indeed, there are not many relevant surveys or measurement tools indicating the changes in absolute terms. It is also true that the CPI does not provide a good measurement of change. That's one of its weaknesses. However, here are some references we found to be of relevance.

Measurement of corruption: Up-to-date readings

World Bank: "New Frontiers in Diagnosing and Combating Corruption", PREM Note number 7, October 1998

Galtung, Fredrik and Charles Stamford: "Measuring Corruption" (Eds.: ), the book coming out later this year to be published by Ashgate (2003).

Measuring corruption arguments and analysis will also appear on the www.corruptionsurveys.org website that will go live in late May this year. More than 80 detailed national corruption surveys will also be published on that web site.

B. Additional Resources

There are some national surveys that provide some insight, but very few of them have been repeated consistently with the same methodology. If you are interested in any particular country/countries, please let us know and we will contact our relevant national chapters directly and may be able to obtain national data for that particular country.

The Kenyan Urban Bribery Index has been repeated. That might provide some insights. Please consult TI Kenya for further details or see the 2002 survey.

In Latin America there has been a "Latinobarometro" survey conducted regularly over the past few years. The same in Southern Africa and in Eastern Europe. Data for this are available in the data section of the Transparency International's Global Corruption Report. These surveys reflect perceptions of corruption, however, and do not provide direct inferences on changing corruption levels.

Finally, the Global Corruption Barometer, a new annual survey tool developed by TI with Gallup International will be published in about a fortnight. That will provide some indications in year one and much more information in year two on actual experiences and changing levels for 50+ countries.

Part II: Costs of Corruption in Different Economic Sectors

Enclosed please find:
A. Narrative Brief on Economic Costs of Corruption (published as part of U4 corruption FAQs)
B. References to collections of information on Costs of Corruption
C. References to individual papers on Economic Costs of Corruption (with brief descriptions and electronic links)

A. Narrative Brief on Economic Costs of Corruption
The economic costs of corruption vary according to the scale and frequency of corrupt transactions and on which part of the economy and population are most affected by it.

In principle, corruption acts as an unofficial tax on consumers and producers and those least able to pay, the poor, suffer the most from its regressive impact. The macroeconomic costs are hard to assess because it is difficult to measure how much corruption there is and because it is hard to establish a robust causal link between levels of corruption and levels of economic performance.

But many economists agree that there are significant correlations between high levels of corruption and a range of negative economic consequences including:

• Creating inefficiencies in the operation of markets.
• Distorting the composition of public expenditure by focusing spending on activities likely to yield large bribes, for example, major public construction works and defence contracts.
• Reducing the level of direct foreign investment by adding costs and creating uncertainty.

Petty corruption imposes disproportionate costs on the poor but its wider economic costs are limited. Large scale or grand corruption can destroy the economy and impoverish entire populations.

In developing and transition countries there seems to be significant correlation between high levels of corruption and lower levels of investment and growth. High levels of corruption are not incompatible with high levels of economic growth, as some of the East Asian 'Tiger' economies demonstrate. But current economic thinking suggests that if those states had been able to reduce their levels of corruption, they would have experienced even higher rates of economic growth.

In a large robust dynamic economy, the economic costs of low levels of corruption are minimal. In a fragile, unbalanced, stagnant economy, the economic costs of high levels of corruption are insupportable.

B. References to collections of information on Costs of Corruption

World Bank Cost and Consequences of Corruption page
This site contains a broad selection of mainly World Bank generated readings on the costs and consequences of corruption. Many of the listed articles are available online.

Visit the World Bank's published papers on Governance for a more extensive selection of online material, including a bibliography on corruption.
As you will see, a majority of the papers have been published on the World Bank site, as it has, in the past years, been one of the more pro-active information providers on the issue.

IMF Fiscal Affairs Department, 2001: IMF Research on Corruption. In: The Global Corruption Report 2001
In this short chapter, the IMF presents the empirical findings of its studies on the economic and distributive consequences of corruption in table format.

OECD AnCoRR web Impact page
This page, which forms part of the OECD's anti-corruption sites, contains a bibliography on the social, economic, political and developmental impact of corruption.

C. References to individual papers/chapters on Economic Costs of Corruption (with brief descriptions and electronic links)

Vito Tanzi, Hamid Davoodi, 1998: Roads to Nowhere: How Corruption in Public Investment Hurts Growth In: Economic Issues No 12, March 1998
In this paper, Tanzi and Davoodi analyse the economic impact of corruption in procurement. Contrary to the economics profession's 'golden rule', which states that increased public capital spending leads to economic growth, corruption in procurement seems to reduce the capital spending's productivity and as a consequence lower the growth rate of the country. Tanzi and Davoodi run a series of regressions to determine the relationship between levels of corruption and aspects of public spending and revenue collection. They find that corrupt procurement practices do indeed have the potential to reduce growth by (1) reducing the productivity of public investment, by (2) increasing public investment that is not adequately supported by nonwage expenditure on operation and maintenance, by (3) reducing the quality of the existing infrastructure and by (4) decreasing the government revenue needed to finance productive spending.
This document is based on a paper by Tanzi and Davoodi, which was published under the title "Corruption, Public Investment, and Growth" as IMF working paper 97/139. It forms part of a series which aims to make available to a broad readership some of the economic research produced in the IMF and is, as such, easy to read and yet highly informative. Even though it does not propose solutions, it provides a compelling overview of the harm corruption in procurement causes in the country in which it takes place.

Daniel Kaufmann, S-J Wei, 1999: Does 'Grease Money' Speed Up the Wheels of Commerce?
In this paper, Kaufmann and Wei invalidate the theory that bribery reduces effective red tape. Using data from three firm-level surveys, they find that red tape is not exogenous but dependent on both the firms' ability to pay and the discretionary powers of rent-seeking bureaucrats, thus showing that corruption may well enhance red tape, not circumvent it.

Paolo Mauro, 1997: Why worry about corruption?
This paper has two goals. First, it lists a number of possible causes and consequences of corruption, derived from a review of empirical studies that use cross-country regressions to determine the strength of the links between corruption and its causes and consequences. Although data limitations subject empirical work to many uncertainties, these studies provide tentative evidence that corruption may seriously inhibit economic performance. Second, the paper presents recent evidence on the extent to which corruption affects investment and economic growth and on how it influences governments in choosing what to spend their money on. It finds that corruption discourages investment, limits economic growth, and alters the composition of government spending, often to the detriment of future economic growth.

Susan Rose-Ackerman, 1996: The Political Economy of Corruption - Causes and Consequences
In this short note, Rose-Ackerman examines corrupt opportunities and their political, economic and distributive implications. Stating that corruption can have a seriously distortionary and debilitating effect on the national economy, she nevertheless stresses that corruption is but a symptom of malfunctioning, not its underlying cause.

Shang-Jin Wei, 1997: Corruption in Economic Development: Beneficial Grease, Minor Annoyance, or Major Obstacle?
This paper reviews the overwhelming statistical evidence that countries with high corruption levels have poorer economic performance. Ultimately, the success of any anti-corruption campaign depends on the reform of domestic institutions in corrupt countries.

The World Bank, 2000: Anticorruption in Transition, a Contribution to the Policy Debate (Chapter 2. The Economic and Social Consequences of Corruption in Transition Countries)
This chapter reviews the empirical evidence on the economic and social costs of corruption in the context of the Central and East European transition economies. Discussing the consequences of corruption in areas such as growth and investment, fiscal stability, public service provision and government credibility, the authors stress that although these may be prevalent to differing degrees depending on the respective state, they cannot be treated in isolation one from another: corruption, state capture and distrust are mutually reinforcing.

The papers selected above are intended to give the interested reader an overview of the issues involved. The literature available on the cost of corruption in economic sectors (including business and service delivery) extends beyond. If you are interested in one particular sub-sector or angle, we would be happy to conduct further literature searches and reviews.