CORRUPTION Syndromes of Corruption

The international setting 27
and Alonso-Terme, 2002; Tanzi and Davoodi, 2002a; Tanzi
and Davoodi, 2002b; Lambsdorff, 2003a; Lambsdorff, 2003b). Surveys
of businesses and bureaucrats show that where corruption is extensive
bureaucratic requirements and delays tend to be significantly greater, not
less (Kaufmann and Kaliberda, 1996; Wei, 1999; Hellman, Jones, and
Kaufmann, 2000; Reinikka and Svensson, 2002; Hellman and
Kaufmann, 2004). Moreover, corruption is a risky and unreliable form
of influence: officials powerful enough to create monopolies and resist
accountability are also powerful enough to renege on their side of a deal.
Corrupt deals place the payers outside the protection of the law and
create a trail of incriminating evidence that can be used to impose further
pressure.
Between corruption and reduced growth there are several causal connections.
Primary among them are effects on investment (World Bank,
1997; Mauro,1998; Seyf,2001). Wei (1997; Wei,2000; see also Mauro,
1998; Fisman and Svensson, 2000) has shown that corruption amounts to
a heavy ‘‘tax’’ on foreign direct investment, and estimates that an increase
in corruption from the low levels of Singapore to the much higher levels of
Mexico is equivalent to a 21 percent levy on investment. Investment seems
to be damaged most where corruption is high and the predictability of its
rewards is low (World Bank, 1997; Campos, Lien, and Pradhan, 1999),
likely reflecting the negative effects of poorly functioning institutions
(Knack and Keefer, 1995). The quality and implementation of environmental
policy also suffers in corrupt regimes (Esty and Porter, 2002), as do
health and education efforts (Gupta, Davoodi, and Tiongson, 2001).
Mauro (1998) finds that public spending in high-corruption countries
tends to be diverted from education toward activities like major construction
projects where sizeable bribes are readily available (see also Rauch,
1995; Ruzindana, 1997). Significant corruption is associated with lowquality
regulation, services and infrastructure (Rose-Ackerman, 2002),
and with ineffective tax collection and administration (Mauro, 1998).
International aid is less likely to be used effectively in high-corruption
countries (IMF, 1995; Isham, Kaufmann, and Pritchett, 1995; Kilby,
1995). Corruption diverts talent – official as well as entrepreneurial –
resources, and effort away from productive activities into rent-seeking
(Murphy, Shleifer, and Vishny, 1993; Mauro,1998; Gaviria,2002). It
encourages inefficient contracting for unneeded services: Daniel
O’Connell’s legendary political machine in Albany, New York, employed
sixty-eight janitors to maintain the six-story City Hall, nearly as many as
worked in the Empire State Building (Kennedy, 1983: 341).
Consistent with our discussion of participation and institutions, data
also point to significantly higher levels of corruption in economies with