Working Paper Number
There is growing consensus on the view that corruption hurts economic performance by reducing private investment, by adversely affecting the quantity and quality of public infrastructure, by reducing tax revenue, and by reducing human capital accumulation. In addition to inefficiency effects – causing lower growth for a given endowment in factors and technology –, corruption also has adverse distributional effects as it hurts the poor disproportionately. For a given level of government budget and national income, high corruption countries achieve lower literacy rates, have higher mortality rates, and overall worse human development outcomes. Corruption deepens poverty by reducing pro-poor pubic expenditures, by creating artificial shortages and congestion in public services, and by inducing a policy bias in favor of capital intensity, which perpetuates unemployment. High levels of corruption in African countries constitute one of the factors explaining not only slow growth but also limited progress in poverty reduction. Eradicating corruption in African bureaucracies is a challenging task, especially because it is a systemic phenomenon that exhibits a strong tendency for hysterisis. Therefore, explicit strategies are necessary to change the incentive structure by modifying the payoffs and sanctions that govern the interactions between bureaucrats and private economic operators. Strategies to fight corruption include measures to increase transparency in the management of public resources, establishing an incentive structure that rewards honest behavior among civil servants, enforcing transparency in international contracts and equal penalties to all parties to corrupt deals, and promotion of a free and responsible media.