The strongEconomicstrong Costs of Corruption A Survey and New Evidence.pdfVIP

The Economic Costs of Corruption: A Survey and New Evidence ♣ ♦ Axel Dreher and Thomas Herzfeld June 2005 Abstract This paper reviews the empirical literature on the economic costs of corruption. Corruption affects economic growth, the level of GDP per capita, investment activity, international trade and price stability negatively. Additionally, it biases the composition of government expenditures. The second part of the paper estimates the effect of corruption on economic growth and GDP per capita as well as on six possible transmission channels. The results of this analysis allows to calculate the total effect of corruption: An increase of corruption by about one index point reduces GDP growth by 0.13 percentage points and GDP per capita by 425 US$. 1. Introduction The harmful effects of corruption on countries’ economic development are widely acknowledged in the economics literature. Using formal as well as empirical approaches several authors show that corruption detracts investors, reduces the productivity of public expenditures, distorts the allocation of resources and thus lowers economic growth. These findings are reflected in the strategies of multinational organizations like the World Bank, the International Monetary Fund, and the OECD, among others. The most well-known examples are the 1997 World Bank Anti-corruption Strategy, the OECD Convention on Bribery of Foreign Public Officials in International Business (1997) and the recent (2003) United Nations Anti-corruption Treaty.1 While the consequences of corruption on certain aspect