Relationship between Bribery and Economic Growth: An Empirical Analysis

By Sanyal, Rajib; Samanta, Subarna | Indian Journal of Economics and Business, March 2010 | Go to article overview

Relationship between Bribery and Economic Growth: An Empirical Analysis


Sanyal, Rajib, Samanta, Subarna, Indian Journal of Economics and Business


Abstract

Examining measures of bribe taking and the real gross domestic product (GDP) of 20 countries over a twelve year period, it appears that higher incidences of bribery do adversely affect the rate of economic growth of nations. However, the rate of growth of real GDP does not have a similarly strong impact on reducing bribery levels. Furthermore, for individual countries, the relationship between these two variables varies considerably, indicating that country-specific factors explain both the prevalence of bribery and the pace of economic growth.

Keywords: Bribery; economic growth; corruption perceptions index; international business; public policy

I. INTRODUCTION

The issue of bribery in international business has been receiving increasing attention from national governments, inter-governmental bodies, non-governmental organizations, chambers of commerce, civic institutions, business executives, and civil society in general. The attention stems from a recognition that bribery imposes costs on doing business, distorts competition, misallocates resources, undermines market efficiency and predictability, encourages illegal and unethical conduct, erodes public respect for the rule of law, undermines development projects, and retards economic growth, particularly so in developing countries where poverty is widespread (Lambsdorff, 1998, Mauro, 1995).

Rapid economic growth offers the surest means to free mankind from poverty. Rising incomes not only allow for increased consumption but also generates the resources needed to invest in vital social and physical infrastructure (e.g., education, health, roads, and electricity) which in turn stimulates further economic activity. Economic activity is often enhanced by international trade and inflows of foreign investment to supplement domestic resources. To the extent that bribery discourages such activities and flows, resources available for development are reduced and thus hurt the rate of economic growth of a country.

The focus of this paper is on examining this relationship between bribery and rate of economic growth to determine (a) whether the level of bribery in a country affects the rate of its economic growth and (b) whether the rate of economic growth in a country affects the level of bribery in that country. In other words, do higher levels of bribery retard economic growth and conversely, do higher rates of economic growth reduce the levels of bribery. Thus, this paper seeks to ascertain the relationship between these two variables as they impact each other.

II. DEFINING BRIBERY & BRIBERY IN INTERNATIONAL BUSINESS

Bribery is defined as "the offering, promising or giving something in order to influence a public official in the execution of his/her official duties" (OECD Observer, 2000). Bribes can take the form of money, other pecuniary advantages, such as scholarship for a child's college education, or non-pecuniary benefits, such as favorable publicity. In the international context, bribery involves a business firm from country A offering financial or non-financial inducements to officials of country B to obtain a commercial benefit.

Transparency International defines corruption as "the abuse of public office for private gain." The non-profit organization produces annually its survey of countries ranked on the basis of how corrupt they are perceived to be. Known as the Corruption Perceptions Index (CPI), it is based on "the misuse of public power for private benefit, with a focus, for example, on bribe taking by public officials in public procurement" (www.transparency.org). The CPI has emerged as a prominent measure of the extent of bribery in international business and is increasingly used by scholars to empirically ascertain patterns and relationships with other variables to understand this subject. The focus of this paper is on bribery, which is a major form of corruption. …

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