The paper addresses corruption’s impact on development, and argues that corruption may be costly to economic development. The authors postulate two broad reasons for the costly impact of corruption on development. First, the weakness of central government allows various governmental agencies and bureaucracies to impose bribes on private agents where competing bureaucracies can slow down or stop projects from proceeding, and can ultimately hinder investment. The second reason relates to the distortions entailed by the necessary secrecy inherent to corruption where the demands for secrecy can shift a country’s investments away from the highest value projects, and cause countries’ leaders to maintain monopolies and ultimately impact growth and investment. Additionally, they argue that economic and political competition can reduce the levels of corruption and reverse its effects.
The Quarterly Journal of Economics