What do we want to know and why?
Corruption is a symptom and an outcome of institutional weakness, with potentially adverse effects on a country’s economic performance. In the last two decades, a wide range of scholars, policy-makers and practitioners have expressed concerns that corruption has gone hand-in-hand with extensive liberalisation reforms and led to poor economic outcomes, including slow growth and high levels of growth volatility. This systematic review asks: what is the impact of corruption on economic growth?
What did we find?
Corruption affects economic growth directly by increasing the cost of production or service delivery, and indirectly by distorting the cost and incentive structures that shape the expectations and decisions of all economic actors.
The evidence base indicates that corruption has a negative and statistically significant effect on per-capita income growth – directly and indirectly, in low-income countries and elsewhere. In fact, the impact of corruption on growth is more detrimental in samples that are not exclusive to low-income countries only.
Suitable targets for anti-corruption interventions are corrupt activities that distort the allocation of resources and talents through the human capital and public investment/expenditures channels.
The growth effect through the investment channel is positive in both low-income and other countries, but this is not statistically significant. In addition, the positive effect through investment is more than outweighed by the negative effects through other channels.
What are the implications?
Corruption should be considered as an international problem with varying degrees of adverse economic consequences rather than as a problem confined to low income countries.
How did we get these results?
This systematic review of 115 studies provides comparable, reliable and verifiable estimates of the effect of corruption on economic growth by controlling for study heterogeneity in terms of growth measures, data sources and country grouping. A narrative synthesis of theoretical and analytical studies uncovered mechanisms and country-specific factors through which the growth impact of corruption is mediated. A meta-analysis of empirical studies estimated the direct and indirect effects of corruption on growth.
The EPPI-Centre reference number for this report is 1914.
This report should be cited as: Ugur M, Dasgupta N (2011) Evidence on the economic growth impacts of corruption in low-income countries and beyond: a systematic review. London: EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.