Corruption: Good or Bad?

Through his book “The Elusive Quest for Growth: Economist’s adventures and misadventures in the tropics”, William Easterly presented forceful explanations for the failure of development efforts in the last decades in the Third World’s countries. As far as the role of the government is concerned, corruption is the most detrimental growth-killing factor that government officials are tempted to commit. Easterly dedicated a whole chapter to elaborate on the scale of corruption, its impact on growth, its causes and some actions that should be taken against this damaging practice. Many of these arguments are compelling and supported by other researches but still they are not at all flawless. The paper would take a closer look at his standing on relationship between corruption and growth, the types of corruption and its contributing factors.

In line with other commonly-held perceptions of corruption-growth nexus, Easterly hold that corruption and growth are inversely related. Similarly, the investment ratio to GDP bears a negative correlation with corruption. Other growth promoting policies fail to materialize or bring expected results due to diversions of fund from public revenues. Budget deficits are closely linked with corruption as public expenditures get inflated through kickbacks. To elaborate on Easterly’s viewpoint, corruption poses an obstacle to growth through several significant mechanisms. First, it takes its toll on private investment by making the cost of business more costly. Bribe is supposed to be given to officials at various government levels in return for permission to engage in production, marketing, transportation, thus reducing the net profit of enterprises. Also, it increases uncertainty to investment due to the illegality and confidentiality of the practice, thus stifling the incentives to invest of both domestic and foreign investors. Corruption also interferes with the quantity and quality of public investment. Paying bribes to evade tax,