What total production and considering that more

What is the
definition of corruption?

 

It is the abuse of public office for private
gain. Corruption is the abuse of a power received by the delegation to enrich
oneself personally or a third party such as a family member or a friend. A
public official or an elected official, because of the position he or she
occupies will then do things differently in exchange for a sum of money, a
promise or a gift of some kind.

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Is corruption
good or bad?

 

To study this question, I analyzed an article based on
the case of Latin America which proves that in this case, that corruption could
have some positive repercussions. Carlyn
Dobson & Antonio Andres (2012)

 

An econometric
model was used with data from 19 South American countries during the period
1982 to 2002 to analyze the relationship between the corruption perception
index and the Gini coefficient which measures inequalities. The results told us
that the sign on the coefficient corruption was positive. This result is
particularly interesting because it indicates that a reduction in corruption is
associated with an increase in the Gini coefficient. In other words, this means
the lower corruption the higher is inequality.

 

But why does reducing the
level of corruption increase the inequalities in these countries?

 

Latin American countries have a relatively large informal sector which
accounts for 25 to 30% of total production and considering that more than 50%
of the urban workforce has informal jobs, any measure that lowers the level of
corruption will result in relatively large losses for low-income groups as
informal workers are mostly poor and have no studies or experience. “In Peru,
for example, Tokman (2001) shows that formalization could result in a 50
percent reduction in profits for 75 percent of companies.”

 

This means that corruption could be “good” because it brings
some short-term benefits in underdeveloped countries such as reducing bureaucracy
and speeding up the implementation of administrative practices governing market
forces but the reality is completely different when we analyze this in the long
run.

 

Then to prove that corruption is bad, I analyzed my
main article from Mauro (1998).

 

To answer this question,
I used its model Mauro (1998) with data for over 100 countries with the average
corruption index to estimate the relationship between corruption indices and
public expenditure components. As a result, corruption changes the composition
of public spending, reducing education and health spending. The question
now is why?

 

 

Because for corrupt government members it will be easier to take bribes
on large infrastructure projects that are difficult to calculate or
sophisticated defense equipment than on textbooks or teacher salaries. This
confirms that the most corrupt countries choose to spend less on education and
health, as this does not offer as much lucrative opportunities to collect
bribes.

 

DO CORRUPT
GOVERNMENTS EXIST IN THE DEVELOPED WORLD?

 

To answer this question, I analyzed an article where the model studied if
increasing government wages could help to reduce corruption. The authors used cross-country
data over ten years (1999–2008), based on a dynamic principal–agent model. Weihua
An & Yesola Kweon (2017)

 

The analyzes show that if one government’s relative wage increases by one
unit this is associated with a decrease in perceived corruption level of 0.26
unit. This effect is particularly important for countries with a relatively low
government wage like many underdeveloped countries, for example. We conclude that
increasing government salaries can help reduce corruption. The more the country
is developed, the higher the government wages and the less corruption there
will be.

 

Yes, corrupt governments exist in the developed world, although there is
a strong correlation between economic development and perceived corruption. It
is true that rich countries are perceived as less corrupt than poor countries,
nevertheless there are many countries within the (OECD) with very high levels
of perceived corruption.

 

CONCLUSION

 

Corruption is bad even in the case of Latin America where it has some
short-term benefits, but countries could end up in the long run with an even weaker
institutional framework, and end up in a trap of poor governance and low
productivity. The GDP levels of corrupt countries could be
much higher if it could be eliminated. We can conclude that there is a great
negative correlation between the wealth of a nation and its level of
corruption.

 

Yes, corruption is also an economic problem for many more developed
economies as it influences growth opportunities and their potential for
productivity.

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