A random walk down the world of business economics
Thursday, December 9, 2010
Corruption and bribes
The chart below shows the percentage of respondents in selected countries who willingly paid bribes to different service providers. The frequency of offering bribes for personal gains is strongly associated with the level of economic development. The highest percentage of paid bribes accures in those countries where the quality of institutions is very poor. The absence of judicial independence leads to the lack of trust, spread of uncertainty and costlier contract enforcement. In such conditions, corruption increases network and transaction costs. Thus corruption is a substitute for tax system. In terms of economic costs, corruption reduces economic growth by increasing the cost of transparent contractual relations. If corruption is persistent to a lesser extent, corrupt behaviour such as paying bribes is costlier since the probability of being caught is higher. Property rights and the rule of law together with judicial independence play an essential role in fighting corruption. Poorly defined property rights increase the risk of expropriation and therefore provide an incentive to pay bribes. Establishing a robust system of the rule of law is the best safeguard in tackling the persistence of corruption.