Transparency International has just released its 2009 Corruption Perceptions Index (CPI), which ranks public sector corruption levels in 180 nations.
The least corrupt countries are New Zealand, Denmark, Singapore, Sweden and Switzerland, while Iran, Venezuela, Turkmenistan, Uzbekistan, Chad, Iraq, Sudan, Myanmar, Afghanistan, and Somalia represented the most corrupt countries in the world.
So what is the effect of corruption on growth? In a new paper, Ratbek Dzhumashev (Monash University) examines this question.
His research “shows that direct and indirect growth effects of corruption can be statistically significant. Moreover, the empirical results confirm the existence of both negative and positive growth effect of corruption.”
On the negative end, corruption inhibits growth “by distorting the publicly provided productive externality and by deteriorating the overall business climate and perpetuating bad expectations about economic opportunities.”
On the positive end, he finds that “investment levels are higher with an increase in corruption levels, other things being equal.”
Nevertheless, the overall effect of corruption is negative, as the negative effects transmitted directly and through the public sector inefficiencies are greater than the positive effect through investment.