Elgar original reference
Edited by Susan Rose-Ackerman and Tina Søreide
Chapter 1: Corruption and Sustainable Development
Toke S. Aidt 1. Introduction Corruption in its various forms is generally believed to be an obstacle to economic development.1 Anti-corruption reforms and policies consequently offer great promise to contribute to the well-being of millions of people. The seminal paper by Mauro (1995), which spurred a large empirical literature,2 concluded that ‘if Bangladesh were to improve the integrity and efficiency of its bureaucracy to the level of that of Uruguay . . . its yearly GDP growth rate would rise by over half a percentage point’ (p. 683). Yet, in subsequent work on macroeconomic data, it has proved hard to find robust evidence that corruption, as opposed to general government inefficiency, has a sizable negative effect on growth in real GDP per capita (see, for example, Aidt, 2009).3 On the other hand, the evidence of a strong negative correlation between the level of GDP per capita and corruption is overwhelming, but a priori the direction of causality is unclear. Murphy et al. (1993), Ehrlich and Lui (1999), Lambsdorff (2007) and many others see the causality as running from high corruption to low income, while Treisman (2000) and Paldam (2002), among others, argue that a transition from a situation with high corruption to one with low corruption is a by-product of economic development. In a recent paper, Gundlach and Paldam (2009a) use deep prehistoric measures of biogeography as instruments for GDP per capita to demonstrate that the long-run causality runs from low levels of development to high corruption, thus suggesting that the...