Corruption and its impact on Growth, Business and Government Effectiveness

Ivo Dimovsky Managerial Economics – Empirical paper EMBA - American University of Bulgaria April 4th, 2012

ABSTRACT

Corruption, like an infection, has co-existed with human society for a long time. Corruption has received significant attention among economists and international financial institutions during the last few decades, given its impact on economic growth both in developed and developing countries. There is an increasing volume of literature on the relationship between corruption and economic growth, and the general conclusion is that corruption slows down the long-term growth of an economy through a wide range of negative post-effects. It hampers economic growth, disproportionately burdens the poor and undermines the effectiveness of any investment and aid. Some theoretical studies suggest that corruption may counteract government failure and promote economic growth in the short run, however in recent years this studies aren`t anymore valid given the clear message from the negative effects on society and the economic system. In this paper we will analyze and present: First, we will describe and list a number of causes and consequences of corruption, derived from recent international studies from worldwide organizations trying to fight corruption. Second, we will introduce a regression model that can help explain the negative relationship between corruption (Corruption Perception Index or CPI1) and economic growth by looking closely over metrics like the government effectiveness2 in percentiles and GDP per worker conclude.
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in a huge sample of countries. In the last chapter we will

1

CPI - Official metric, which aims to track corruption levels in 258 countries around the world, trough a multifunctional methodology, available at the Transparency international