Effects Of Corruption Behavior On The Economic Development

Corruption is acknowledged to be widespread. Concern about corruption is driven by its widely accepted pernicious effects. It undermines the rule of law, sound governance, and competitive business transactions, distorts social and human values, and raises political and moral concerns. According to Transparency International’s 2003 Corruption Perception Index (CPI) rankings for African countries corruption indicators suggest that, with the exception of a few countries such as Botswana, Tunisia, Namibia, Mauritius, and South Africa, African countries ranked 70 or higher.

In developing countries, the economic effects of corruption can be devastating. Corruption has far reaching effects upon the distribution of social and economic welfare. Government expenditure favors the secret bribing of government officials (Vishny, 1993; Mauro, 1997 cited in Klein, 2005). Such can lessen the effectiveness of the government as funds are diverted away from the intended projects. The empirical evidence that corruption actually distorts public expenditure and public investment is however not convincing (Lambsdorff, 2004: 7). Corruption is further said to generate inequality; a share of the country’s wealth is distributed among insiders and corrupt bidders at the expense of other parties such as the common tax payers (Gupta, Davoodi and Alonso Terme, 1998). Moreover, the allocation of public procurement contracts through a corrupt system may lead to inferior public infrastructure and service as pointed by (Rose Ackerman, 1997 cited in Klein, 2005). Some argue that corruption also damages political legitimacy because it makes the government to substitute democratic values for decisions based on individuals’ financial capacities (Bueno de Mesquita, 2001).

Various studies carried out on corruption and economic growth has two (2) distinct schools of thought. The first school of thought believes that corruption enhanceseconomic growth. This is based on the fact that corruption (i. e. payment of bribery to bureaucrats in many forms) acts like oil that greases and facilitates the engineof economic growth as it helps government officials to make the process of project approval more efficient. Hence, the proponents of this view including Leff (1964),Huntington (1968), Acemoglu and Verdier (1998), Friedrich (1972) and Nye (1967) suggest that corruption introduces efficiency in the economy and affectseconomic growth positively. Corruption works like piece rate pay for bureaucrats, which induces a more efficient provision of government services, and it, provides aleeway for entrepreneurs to bypass inefficient regulations. They have suggested that corruption may help economic growth. They claimed that corruption mayallow business actors to work around pervasive and inefficient bureaucratic procedures, reducing some of the adverse effects of red tape. The second school of thought advocates the efficiency reducing argument. Researchers like McMullan (1961), Krueger (1974), Myrdal (1968), Shleifer and Vishny (1993), Tanzi (1997) Gould and Amaro-Reynes (1983) Mauro (1995, 1997), Aliyu and Elijah (2008), United Nations (1989), Tanzi and Davoodi (1997) findings have claimed that corruption hinders economic growth, distorts markets and allocation of resources.

Corruption tends to neglect education and health in favor of sectors where corruption might not be perceived easily. It also tends to increase the size but also reduces the productivity of public investment and that of the country’s infrastructure. It has the tendency to reduce tax revenue because it compromises the government’s ability to collect taxes and tariffs. Empirical evidence suggests that corruption affects economic growth in two ways: first, there appears to be a robust negative correlation between level of corruption and economic growth, Gould and AmaroReynes (1983) Mauro (1995, 1997), United Nations (1989), Tanzi and Davoodi (1997) find evidence that bureaucratic malpractice manifests in the diversion of public funds to where bribes are easiest to collect, implying a bias in the composition of public funds towards low-productivity projects at the expense of value enhancing investments. Second, there is a two-way causal relationship between corruption and economic growth: bureaucratic rent-seeking not only influences, but is also influenced by the level of development.