In Chapter 2 we discussed the microeconomic effects of corruption: our analysis highlighted the fact that corruption adversely impacts society in the form of a major efficiency loss. Additionally, we noticed that a negative correlation exists between certain variables that are proxies of governance quality and a country's domestic corruption. We showed that a negative correlation also exists between corruption and domestic competitiveness. These relationships call out to policymakers as they show how corruption represents a limit for business competitiveness and a drag on economic development. Economic policies that initiate governance-enhancing reforms can be effective in promoting a country's competitiveness (Alesina and Giavazzi 2006). The literature on the impact of corruption on economic performance is exceptionally wide: the focus of our analysis shifts now from the perspective of firms and markets to the dynamics underlying the determination of macro variables in an economic system. We turn our attention to the effects of corruption on a country's income, trade, and interest rates for both industrialized and developing economies; we also discuss how corruption adversely affects macroeconomic performance indirectly via education or trade flows. The second part of this chapter is devoted to an in-depth analysis of the effects of corruption on the public sector, including its performance during economic cycles. Finally, in the last paragraph our focus broadens to the issue of the persistence of corruption over time.
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