Corruption : the issues

Corruption comes in many varieties. In different countries it has different determining factors, forms and impacts on development. In any given context, effective policy design calls for an accurate understanding of how corruption functions in that context. This technical paper produced as part of the OECD research programme on Political Economy and Development in Africa suggests a framework for analysing the determining factors and development impacts of corruption in any given country, institution or sector.The paper draws of principal-agent theory to focus on four basic issues of corruption, namely its causes, its effects on economic growth, how to minimize corruption in donor assistance programmes, and its impact on political stability.The paper present the basic elements of a theory about causes of corruption and looks at how the elements present themselves at the international, national and institutional levels; considers alternative conceptions of the determinants of corruption; examines how corruption is organised and discusses its implications for the economic environment. A final section examines the empirical work that has been done on corruption to date.The authors contend that:Competition in international markets may be a driver of corruption, particularly in countries that are rich in natural resources.At the national level, corrupt practices are most likely where there is political control over the civil service and judiciary, where structures of political accountability are weak, and where there is bureaucratic control over the economy.Corruption within individual institutions is dependent on the extent of discretionary power awarded to officials and the opportunities for monitoring and holding them accountable for their actions.Corruption that is well-ordered, centralised and predictable is generally less damaging to the economy than that which is anarchic.The economic effects are:<B>Distortionary –</B> rendering less efficient the allocation of scarce economic resources, and<B>Disincentive –</B> discouraging investment by increasing risk and uncertainty in the market.In the political arena corruption fosters repressive policies designed to eliminate threats to the ruling party. It also perpetuates dependence on direct foreign investment or aid as a means to increase foreign exchange for personal benefit.The authors identify a lack of empirical studies of corruption, and of studies designed to systematically test the various corruption hypotheses. The framework proposed emphasises a number of concrete aspects of developing country economies for future research. Implications include the following:It will be useful to consider separately the causes of corruption at the international, national and institutional levels.It would be most useful in the short term for researchers to concentrate on the basic hypotheses they present, derived from principal-agent theory.The framework suggests that the negative effects on an economy will be most marked in cases where corruption has an anarchic form.Case studies are needed which offer more detail of how corruption functions, and which are designed to test specific hypotheses.It would be useful to compare one or more African countries with East Asian examples, because corruption appears to have been equally prevalent in both contexts, but with significantly different economic impacts.