corruption, institutions and economic development.pdf

Corruption, Institutions and Economic Development * Toke S. Aidt April 2009 Paper prepared for a special issue of the Oxford Review of Economic Policy in collaboration with iiG This document is an output from research funding by the UK Department for International Development (DFID) as part of the iiG, a research programme to study how to improve institutions for pro-poor affiliation growth in Africa and South-Asia. The views expressed are not necessarily those of DFID. * Faculty of Economics, University of Cambridge Corruption, Institutions and Economic Development Toke S. Aidty April 6, 2009 Abstract Many scholarly articles on corruption give the impression that the world is populated by two types of people: the sanders and the greasers. The sanders believe that corruption is an obstacle to de- velopment, while the greasers believe that corruption can (in some cases) foster development. This paper takes a critical look at these positions. It concludes that the evidence supporting the greasing the wheels hypothesis is very weak and shows that there is no cor- relation between a new measure of managersíactual experience with corruption and GDP growth. Instead, the paper uncovers a strong negative correlation between growth in genuine wealth per capita ña direct measure of sustainable development ñ and corruption. While corruption may have little average e§ect on the growth rate of GDP per capita, it is a