Assess the empirical evidence on the relationship between corruption and economic growth. Could you illustrate with a case study of an Asian economy?
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An excellent paper on this topic was recently published by MIT researchers (Bai, Jayachandran, Malesky, and Olken, 2013). It can be found with an Internet search and is located at http://economics.mit.edu/files/8777. They develop a model that relates economic growth and mobility to corruption and use data from Vietnam to test their ideas.
Generally, we would expect that economic growth would be hampered by corruption, and this paper looks at the issue in the opposite manner: whether economic growth leads to less corruption. They find that this is indeed the case in Vietnam. As companies grow larger, they are able to benefit from moving away from areas with high levels of corruption. This creates competition ...
Examination of the evidence tying corruption to poor economic growth. Illustration of this from an Asian economy.
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Indonesia's economic growth has been hampered for decades, first because of the dictatorship of former President Suharto and the massive debts that were accumulated during his regime, and, more recently, because of the country's excessive red tape and corruption that make it difficult to start a business. Transparency International ranks Indonesia among the most corrupt nations in the world. Economic growth is also hindered by the country's poor infrastructure and low level of labor productivity. You will probably agree that Indonesia's problems are interrelated. For example, the red tape and corruption that scare off potential foreign investors also mean that the country loses the jobs and the capital that could improve its economy and infrastructure.
Respond to the following:
- Explain whether or not you think the Indonesian economy grew despite or because of a totalitarian regime.
- Discuss what might explain India's relatively poor performance under a democratic political system.
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