Monday, November 5, 2012

Is corruption all that bad for economic growth?

To be clear, my point wasn’t that corruption is unimportant. But if we’re talking about where the world ought to focus its aid energy for the next fifteen years, I simply wouldn’t use corruption in the same sentence (or even paragraph) as civil war or property rights. ...

The reasons that corruption should hurt growth are so persuasive that economists have been pretty surprised not to find much evidence. One team reviewed 41 different cross-country studies of corruption and development. Two-thirds of the studies don’t even find a negative correlation. Cross-country studies have mostly bad data and empirics, so we should not rest here. But Jacob Svensson has a nice overview of the broader evidence and draws the same conclusion: there’s not much to show that corruption reduces growth on net. ...

Are we any good at stopping corruption? Svensson and Bardhan see some hope, but not many good answers. In this article, Rohini Pande’s more hopeful, especially if we design policy armed with economic theory and experiment. ...

[Pritchett, Woolcock, and Andrews] run the following thought experiment: What if we tried to measure the quality of governance (including corruption) over time and space, and figure out the 20 fastest improvements countries have made in recorded history? Then, using this best-case-scenario, we ask how long it will take today’s poorest and weakest states just to get to the median level of governance–not to the level of a Canada or Sweden, but to the (decidedly less ambitious) level of a Tanzania or Guatemala. The answer, depending on the country, is 15 to 35 years. And that’s if they experience a miracle of change.

The goal the US and UK commonly set for the Afghanistans and Liberias of the world, of course, is about three to five years. Just witness the public and political angst every time the NY Times uncovers corruption in its Afghan regime. Be prepared for more.

If this saddens you, just remember the first half of my post: it probably doesn’t matter much, and outsiders should probably be putting their attention elsewhere.