How does corruption affect development?


Johann Graf Lambsdorff

To person

Dr. rer. pol., born 1965; Professor of Economic Theory at the University of Passau; "Father" of Transparency International's Corruption Index; University of Passau, Innstrasse 27, 94032 Passau.
Email: [email protected]

Lotte Beck

To person

Graduate economist, born 1979; research assistant at the Chair for Economic Theory at the University of Passau; is currently doing her PhD on the role of corruption in auctions; University of Passau, Innstrasse 27, 94032 Passau.
Email: [email protected]

Corruption hinders economic growth. Research shows that corrupt behavior lowers a country's productivity and has a negative impact on net capital imports.


In the general perception, corruption, i.e. the abuse of public power for private purposes, and growth do not seem to be mutually exclusive. This view is also evident in the common euphemism for bribes: "bribes". Corrupt payments seem to put things that are at a standstill in public administration back on track. Thus one might think that corruption can promote the growth of an economy because it accelerates the realization of investments and projects. However, this approach is shortened. It does not take into account many of the effects of corruption on a macroeconomic level and is dominated by a more individual view.

This article aims to show how corruption can affect the growth of an economy. First, the methodology of the corruption index of Transparency International is outlined as a measure of corruption. Damage to corruption is then presented through theoretical arguments based on the so-called principal-agent approach. This is followed by an empirical test that shows what effect corruption, i.e. the corruption index as an explanatory variable, has on a country's overall economic productivity and net capital imports. Ultimately, this illustrates the role of corruption as a brake on growth.