Theoretically the effect of competition on corruption is ambiguous. Less competition means firms enjoy higher rents, so that bureaucrats with control rights over them, such as tax inspectors or regulators, have higher incentives to engage in malfeasant behavior. Examples of a positive connection between rents and corruption abound, however. The hypothesis that natural rents, as in the case of oil, and rents induced by lack of product market competition foster corruption, is examined. A model is set up connecting rents to corruption.

/pdf/rents-competition-and-corruption-ef7kjqwu2g.pdf

Rents, Competition, and Corruption

The recent wave of financial globalization since the mid-1980s has been marked by a surge in capital flows among industrial countries and, more notably, between industrial and developing countries. While these capital flows have been associated with high growth rates in some developing countries, a number of countries have experienced periodic collapse in growth rates and significant financial crises over the same period, crises that have exacted a serious toll in terms of macroeconomic and social costs. As a result, an intense debate has emerged in both academic and policy circles on the effects of financial integration for developing economies. But much of the debate has been based on only casual and limited empirical evidence.

/pdf/effects-of-financial-globalization-on-developing-countries-4fgndpscel.pdf

Effects of Financial Globalization on Developing Countries: Some Empirical Evidence

Corruption is a persistent feature of human societies over time and space. The sale of parliamentary seats in 'rotten boroughs' in England before the Reform Act of 1832 and 'machine politics' in immigrant cities in the US at the turn of the 19th century are just two historical examples. Contemporaneous examples also abound and not only from developing countries such as Nigeria, India, and Philippines but also from transition economies such as Russia. Some of these and many other instances of corruption are extensively documented in The Politics of Corruption, edited by Robert Williams and associates. Its four volumes contain a large collection of articles published during the past 40 years in social science journals with contributions from political scientists, sociologists, anthropologists, law scholars, and a few economists including Andrei Shleifer and Robert W. Vishny. It is not surprising to find the work of Shleifer and Vishny represented in this interdisciplinary collection. As is evident from the collection of articles reprinted in The Grabbing Hand, they have, with various co-authors, made a large number of important contributions to the study of corruption and other government pathologies throughout the 1990s. Currently, the study of corruption is also high on the research agenda of international organisations such as the World Bank and the International Monetary Fund (IMF), and some of the most significant studies on corruption coming out of the IMF in recent years are collected in Governance,

Economic Analysis of Corruption: A Survey

This paper demonstrates that high and rising corruption increases income inequality and poverty by reducing economic growth, the progressivity of the tax system, the level and effectiveness of social spending, and the formation of human capital, and by perpetuating an unequal distribution of asset ownership and unequal access to education. These findings hold for countries with different growth experiences, at different stages of development, and using various indices of corruption. An important implication of these results is that policies that reduce corruption will also lower income inequality and poverty.

https://papers.ssrn.com/sol3/Delivery.cfm/WPIEA0761998.pdf?abstractid=882360&rulid=128025&mirid=2

Does Corruption Affect Income Inequality and Poverty

Economic analysis of corruption: a survey*

This volume presents 18 recent IMF research studies on the causes and consequences of corruption, as well as how it can most effectively be combated to improve governance, increase economic growth, and reduce poverty. The authors examine how civil service wages affect corruption, the impact of natural resource availability on corruption, how corruption retards the growth of small and medium-sized enterprises, the impact of corruption on a country's income distribution and incidence of poverty, the effect of corruption on government expenditures on health and education, and the importance of structural reforms in combating corruption.

Governance, Corruption, and Economic Performance

Recent studies have highlighted the adverse impact of corruption on economic performance. This paper advances the hypothesis that corruption is largely a symptom of underlying weaknesses in public policies and institutions, a formulation that provides deeper insights into economic performance than do measures of perceived corruption. The hypothesis is tested by assessing the relative importance of structural reforms vs. corruption in explaining macroeconomic performance in the transition economies. The paper finds that for four widely used measures of economic performance - growth, inflation, the fiscal balance, and foreign direct investment - structural reforms tend to dominate the corruption variable.

https://papers.ssrn.com/sol3/Delivery.cfm/WPIEA1322000.pdf?abstractid=879906&mirid=1&type=2

Corruption, Structural Reforms, and Economic Performance in the Transition Economies

Recent studies have highlighted the adverse impact of corruption on economic performance. This paper advances the hypothesis that corruption is largely a symptom of underlying weaknesses in public policies and institutions, a formulation that provides deeper insights into economic performance than do measures of “perceived corruption.” The hypothesis is tested by assessing the relative importance of structural reforms vs. corruption in explaining macroeconomic performance in the transition economies. The paper finds that for four widely used measures of economic performance—growth, inflation, the fiscal balance, and foreign direct investment—structural reforms tend to dominate the corruption variable.

https://www.imf.org/-/media/Websites/IMF/imported-full-text-pdf/external/pubs/ft/wp/2000/_wp00132.ashx

https://www.elibrary.imf.org/downloadpdf/books/054/01178-9781589062290-en/01178-9781589062290-en-book.pdf

Challenges of growth and globalization in the Middle East and North Africa

Social sectors in an economy are often characterized by market failures.
To correct such failures, governments intervene through the public provision, financing, and regulation of services. There is recognition that
corruption emerges as a by-product of government intervention (Acemoglu
and Verdier 2000); what is not well understood, however, is that corruption can adversely affect the provision of publicly provided social
services. The theoretical literature identifies three channels through which
this can happen. First, corruption can drive up the price and lower the
level of government output and services (Shleifer and Vishny 1993),
including the provision and financing of health care and education
services in many countries.1 Second, corruption can reduce investment in
human capital (Ehrlich and Lui 1999). Finally, corruption can reduce
government revenue (Shleifer and Vishny 1993; Hindriks, Keen, and
Muthoo 1999), which in turn can lower the quality of publicly provided
services (Bearse, Glomm, and Janeba 2000).2 The latter discourages some
individuals from using these services and reduces their willingness to pay
for them (through tax evasion), which shrinks the tax base and diminishes the government’s ability to provide quality public services.3 The
lower quality also creates incentives for individuals to opt for privately
provided services. However, in countries where private markets for health
care and education services are limited, this can lead to congestion,
increased delays in obtaining public services, rising opportunities for rentseeking, and frequent use of discretionary power by government officials.
Even in cases where private markets are well developed and extensive, the
poor may lack the ability to pay for private services and outputs.

George Abed

Papers

Governance, Corruption, and Economic Performance

Corruption, Structural Reforms, and Economic Performance in the Transition Economies

Corruption, Structural Reforms, and Economic Performance in the Transition Economies

Challenges of growth and globalization in the Middle East and North Africa

Corruption and the provision of health care and education services