Corruption And Its Global Impact (LOCAL)

Question 1

Part 1: Corruption as a local issue
Part 2: Corruption as a global issue

Corruption definition from the World Bank

Answer 1

Abuse of public office for private gains

Question 2

2 Levels of corruption

Answer 2

Petty
Grand

Question 3

Petty corruption

Answer 3

Small payments to low-level bureaucrats in order to get small favours in return e.g issuing a permit

Question 4

Grand corruption

Answer 4

Higher level bureaucrats or politicians, involving large amounts of money and favours are respectively bigger (e.g major contracts)

Question 5

Variants of corruption (2)

Answer 5

Bottom-up:
Low-level officials collect bribes and share with superiors.

Top-down:
High-level officials collect bribes and share with low-level employees.

Question 6

Categories of corruption (7)

Answer 6

Bribery
Embezzlement (move funds/assets)
Facilitation payment
Fraud
Collusion
Extortion (harm/threat of harm)
Patronage, clientelism and nepotism (appointing people directly)

Question 7

Causes of corruption (10)

Answer 7

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

Question 8

1st cause of corruption:

Size and structure of government
2 perspectives of a large government:

Answer 8

Government expenditure-2 perspectives
A) large gov=more corrupt politicians
B) large gov=better at fighting corruption>bigger budget for low enforcement

Question 9

2nd:
Salaries of civil service and 2 eval points

Answer 9

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.

Question 10

Democracy and the political system (2)

2. Democracy and corruption diagram displays transformation of democracies evolution.

Answer 10

Political modernisation usually comes with increased corruption.

Democracy reduces corruption but only if institutions are evolved and fully functional.

2. Inverted U shaped. Early stage of democracy, corruption rises, mid-range=consolidation of institutions so peaks and falls, then established democracy=corruption falls.

Question 11

Quality of institutions and Eval:

Answer 11

Negative correlation between quality of institutions and level of corruption.

Weak as no actual measure exists to measure overall quality of institutions

Question 12

3 cases where quality was measured and through what?

Answer 12

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.

Question 13

Economic freedom/openness of economy

Correlation with corruption

Answer 13

Negative correlation between corruption and indexes of freedom.

More competition, harder to hide corrupt payments

Question 14

Press freedom and judiciary correlation and eval:

Answer 14

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)

Question 15

Cultural determinants, 2 metrics and impact on corruption.

Answer 15

Trust and religion:
More trust encourages cooperation, reduces corruption

Positive correlation between % of population belonging to religions and corruption. More religion more corruption

Question 16

% of women in labour force correlation to corruption

Which cases support this? (3)

Answer 16

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.

Question 17

Colonial heritage correl to corruption (2 points)

Answer 17

Depends on country
Positive correl for Spain and France

Negative= British

Question 18

Last cause of corruption:

Abundance of natural resources

Answer 18

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.

Question 19

Theoretical models- rational choice theory has 3 explanations for corruption

Answer 19

Cooperation game (prisoners dilemma)
Collective action
Principle agent model

Question 20

Cooperation game (prisoner’s dilemma) as a theory for corruption.

Answer 20

Incentive to pursue self interest than work with others towards the collective good (social dilemma)

Question 21

Collective action (prevailing norms) as a theory for corruption.

Answer 21

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.

Question 22

Principle-agent model

Answer 22

Relationship between principle and agent. Agent goes against will of principle and acts in self interest. (takes bribes from private individuals)

Question 23

Consequences of corruption:
2 views on corruption

Answer 23

Grease in the wheel-economic advantages

Sand in the wheel-negative impacts of corruption

Question 24

Consequences of corruption

Answer 24

Reduces GDP
Increases inequality
Reduces total investment and capital flows
Reduces FDI
Reduces foreign trade

Question 25

1st consequence of corruption
Reduces GDP evaluation:

Answer 25

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.

Question 26

Reduces total investment and capital flows (2)

Answer 26

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.

Question 27

Reduces FDI:

Where especially…and why?

Answer 27

Especially in developed countries, as corrupt countries have higher level of political and economic instability. (People don’t wanna invest in economically unstable countries)

Question 28

Overall

Answer 28

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.

Question 29

Economic advantages of corruption (3)

Answer 29

Provides opportunity to allocate resources to individuals with highest WTP (therefore more productive ones)

Increase efficiency in bureaucratic processes

Avoid over regulation