Corruption And Its Global Impact (LOCAL) Flashcards
Part 1: Corruption as a local issue
Part 2: Corruption as a global issue
Corruption definition from the World Bank
Abuse of public office for private gains
2 Levels of corruption
Petty
Grand
Petty corruption
Small payments to low-level bureaucrats in order to get small favours in return e.g issuing a permit
Grand corruption
Higher level bureaucrats or politicians, involving large amounts of money and favours are respectively bigger (e.g major contracts)
Variants of corruption (2)
Bottom-up:
Low-level officials collect bribes and share with superiors.
Top-down:
High-level officials collect bribes and share with low-level employees.
Categories of corruption (7)
Bribery
Embezzlement (move funds/assets)
Facilitation payment
Fraud
Collusion
Extortion (harm/threat of harm)
Patronage, clientelism and nepotism (appointing people directly)
Causes of corruption (10)
Size and structure of government
Salaries of civil service
Democracy and political system
Quality of institutions
Economic freedom/openness of economy
Press freedom and judiciary
Cultural determinants
% of women in labour force
Colonial heritage
Endowment of natural resources
1st cause of corruption:
Size and structure of government
2 perspectives of a large government:
Government expenditure-2 perspectives
A) large gov=more corrupt politicians
B) large gov=better at fighting corruption>bigger budget for low enforcement
2nd:
Salaries of civil service and 2 eval points
Higher wages of civil service=less corruption (cost of dishonest behaviour higher)
Eval:
Evidence for the correlation is weak
Reverse causality- Some countries esp poor ones might pay low salaries as common notion that bureaucrats make enough money off corruption.
Democracy and the political system (2)
- Democracy and corruption diagram displays transformation of democracies evolution.
Political modernisation usually comes with increased corruption.
Democracy reduces corruption but only if institutions are evolved and fully functional.
- Inverted U shaped. Early stage of democracy, corruption rises, mid-range=consolidation of institutions so peaks and falls, then established democracy=corruption falls.
Quality of institutions and Eval:
Negative correlation between quality of institutions and level of corruption.
Weak as no actual measure exists to measure overall quality of institutions
3 cases where quality was measured and through what?
Dreher- measured by rule of law index and government effectiveness
Mocan- measured by risk of expropriation
Djamkov- measured by index of market entry regulation e.g time to start up etc.
Economic freedom/openness of economy
Correlation with corruption
Negative correlation between corruption and indexes of freedom.
More competition, harder to hide corrupt payments
Press freedom and judiciary correlation and eval:
More press freedom reduces corruption, report corrupt activities. (Uncensored press reduces corruption)
Eval: reverse causality-corrupt government can lower freedom of press (just like salaries of civil service-gov may recognise gains from corruption so give low wages)
Cultural determinants, 2 metrics and impact on corruption.
Trust and religion:
More trust encourages cooperation, reduces corruption
Positive correlation between % of population belonging to religions and corruption. More religion more corruption
% of women in labour force correlation to corruption
Which cases support this? (3)
Negative correlation: (more women=less corruption)
Swamy and Sung- shows women engage less in corruption than men.
Branisa et al-corruption where women are less able to participate in social life.
Colonial heritage correl to corruption (2 points)
Depends on country
Positive correl for Spain and France
Negative= British
Last cause of corruption:
Abundance of natural resources
2 perspectives
Abundance of resources- encourages trade and investment.
Resource curse (the evaluation)-with an abundance, gov become less efficient. Rich supplies means strong institutions necessary to prevent corruption.
Theoretical models- rational choice theory has 3 explanations for corruption
Cooperation game (prisoners dilemma)
Collective action
Principle agent model
Cooperation game (prisoner’s dilemma) as a theory for corruption.
Incentive to pursue self interest than work with others towards the collective good (social dilemma)
Collective action (prevailing norms) as a theory for corruption.
Corruption might widespread because of social norms that are pro-corruption. It could be the expected form of behaviour. In an environment that is predominantly corrupt, there are few benefits of actually acting ethically.
Principle-agent model
Relationship between principle and agent. Agent goes against will of principle and acts in self interest. (takes bribes from private individuals)
Consequences of corruption:
2 views on corruption
Grease in the wheel-economic advantages
Sand in the wheel-negative impacts of corruption
Consequences of corruption
Reduces GDP
Increases inequality
Reduces total investment and capital flows
Reduces FDI
Reduces foreign trade
1st consequence of corruption
Reduces GDP evaluation:
Causality: corruption cause low GDP (through deterring investment) or vice versa. (Low GDP restricts ability to reduce corruption)
High deters investment
Low GDP can restrict ability to control corruption.
Reduces total investment and capital flows (2)
Increases total costs for investors. (Investors consider cost of bribes before investing in country)
Grand corruption is preferred to petty corruption- only have to bribe a high-level official. Grand usually relates to big projects so impacts total investment.
Reduces FDI:
Where especially…and why?
Especially in developed countries, as corrupt countries have higher level of political and economic instability. (People don’t wanna invest in economically unstable countries)
Overall
Consequences have international implications.
Many countries do not have means or knowledge to address the causes of corruption.
This is why we have to consider global issue of corruption.
Economic advantages of corruption (3)
Provides opportunity to allocate resources to individuals with highest WTP (therefore more productive ones)
Increase efficiency in bureaucratic processes
Avoid over regulation
