The connection between corruption and economic growth
is one of the most important topics
though it's a very difficult set of questions to untangle.
The available evidence is difficult to interpret for a few reasons.
First, is low corruption causing economic growth
or is it also that economic growth is causing corruption?
We can find a correlation and we suspect that
the causation runs both ways,
but it's very difficult to figure out
how much it's corruption causing growth rather than vice-versa.
The second problem in the data is, it seems,
that some kinds of corruption are more likely to harm
economic growth than others.
Yet, the data we have for corruption or aggregate data.
They suggest how corrupt an economy is overall,
but they don't disentangle how much of the bad forms of corruption
that economy has relative to the less harmful forms of corruption.
A very general problem is that if a country is corrupt,
it's very likely to offer bad or misleading data.
In fact, the data themselves may be corrupt.
This should hardly come as a surprise.
So when we're trying to rank corrupt countries
on the basis of their correctness,
sometimes, maybe, we just don't know.
Finally, in some ways,
it's at least possible that a growing modernizing economy
will in some ways become more corrupt.
If you imagine a very, very poor economy,
maybe there's just not that much to fight over,
or there's not that much to bribe for.
But, as that economy grows, again, corruption opportunities increase,
and you may see at some margins positive correlations between
economic growth and corruption,
but it would be wrong to conclude that somehow
the corruption is causing the growth.
Rather, it's the case that, possibly, at some margins,
some amount of growth makes some corruption a little bit easier.
In part, we interpret the data we do have through the lens of economic theory,
and serious economists who study this area or who work in this area,
they believe with virtual unanimity that corruption really does harm growth.
And they believe this because of a mix of evidence and theory,
and, of course, the evidence is viewed through the light of theory.
Before discussing that evidence just a bit,
there's one trap we'd like to warn you against,
and that is, it can always appear that, at some margin,
bribery or corruption might be good for economic growth,
but don't be mislead.
Let's a simple example.
Let's say that, to start a new business, you need to pay a bribe.
You could then say, "Ah, well, bribery is good for business,"
and in a very limited sense, of course, that's going to be true,
but that's missing the point.
The fact that you have to pay the bride is what's bad for business.
So, even though you might have a mental model
or some particular acts of corruption,
may quote-unquote "grease the wheels",
you should not from that conclude that corruption is good for economic growth.
Probably it's not.
The most frequently cited paper on this topic is called
"Corruption and Economic Growth", and it's by Park Hung Mo.
He finds a very definite correlation between higher corruption levels
and lower rates of economic growth.
He also finds the most important channel
for how growth and corruption are connected
is through political instability.
That is, corruption is correlated with political instability
and political instability, in turn, harms growth.
It should be noted that this paper,
like a lot of other work in macroeconomics,
can't really prove that these relationships are strictly causal.
Another well-known paper in the area is by Mauro;
it's called quite simply "Corruption and Growth".
He shows that corruption is associated with lower levels of investment.
And to give an example of the magnitudes, if Bangladesh could be less corrupt,
at a level comparable to, say, that of Uruguay,
their investment rate would rise by a full five points.
A number of papers on African economic growth
consider the relationship with corruption.
Some typical results would be that corruption is associated
with lower growth, lower per capita income,
higher inequality,
and that corruption hurts the poor more than the rich.
Really, no one of these papers would be considered decisive evidence,
but when you put the entire body of evidence
together with a very strongly established body of theory,
again, to reiterate,
virtually all economists are strongly of the opinion
that corruption significantly discourages economic growth.