Poverty, Corruption and Economic Growth

One of the puzzling things I’ve found in the empirical data is that corruption doesn’t seem to have any impact on economic growth (I found instead that corruption primarily impacts the variance of growth, but not growth itself or the level of development). It appears to matter what type of corruption is involved, and the institutional framework that a country has.

Here’s Ricardo Hausmann on the same subject (exceprt):

Fighting Corruption Won’t End Poverty

CAMBRIDGE – Countries are poor because governments are corrupt. And, unless they ensure that public resources are not stolen, and that public power is not used for private gain, they will remain poor, right?

It certainly is tempting to believe so. Here, after all, is a narrative that neatly aligns the promise of prosperity with the struggle against injustice. As Pope Francis said on his recent trip to Latin America: “corruption is the moth, the gangrene of a people.” The corrupt deserve to be “tied to a rock and cast into the sea.”

Perhaps they do. But that won’t necessarily make their countries more prosperous.

Consider the data. Probably the best measure of corruption is the World Bank’s Control of Corruption Indicator, which has been published since 1996 for over 180 countries. The CCI shows that while rich countries tend to be less corrupt than poor ones, countries that are relatively less corrupt, for their level of development, such as Ghana, Costa Rica, or Denmark, do not grow any faster than others.

Nor do countries that improve in their CCI score, such as Zambia, Macedonia, Uruguay, or New Zealand, grow faster. By contrast, the World Bank’s Government Effectiveness Indicator suggests that countries that, given their income level, have relatively effective governments or improve their performance, do tend to grow faster.

For some reason – probably related to the nature of what NYU’s Jonathan Haidt calls our “righteous minds” – our moral sentiments are strongly related to feelings of empathy in the face of harm and unfairness. It is easier to mobilize against injustice than for justice. We are more enthusiastic to fight the bad – say, hunger and poverty – than to fight for, say, the kind of growth and development that makes food and sustainable livelihoods plentiful.

Sometimes switching from the “bad” to the corresponding “good” is simply a matter of semantics: to fight against racism is to fight for nondiscrimination. But, in the case of corruption, which is a bad that is caused by the absence of a good, attacking the bad is very different from creating the good.

This largely jives with my own exploration of the data (the article goes on to talk about the importance of institutions). Corruption is worth fighting against for its own sake, but don’t expect success here would suddenly breed prosperity. Of course, in the kind of climate we’re in right now, I doubt anyone’s really listening.