Costs of corruption

A very short but essential message:

The Economic Costs of Corruption: A Survey and New Evidence by Axel Dreher and Thomas Herzfeld reviews ’the empirical literature on the economic costs of corruption’. Their conclusion is: ‘Corruption affects economic growth, the level of GDP per capita, investment activity, international trade and price stability negatively’. ‘Additionally, it biases the composition of government expenditures’. They report as result of the analysis that ‘an increase of corruption by about one index point reduces GDP growth by 0.13 percentage points and GDP per capita by 425 US$’. ‘An increase in the corruption index by about one point has the same effect as a 7.5 percentage points increase of the tax rate’.

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