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Skidmore College Skidmore College
Creative Matter Creative Matter
Economics Student Theses and Capstone Projects Economics
2017
Does Corruptin Affect Productivity in Terms of Growth in Brazil? Does Corruptin Affect Productivity in Terms of Growth in Brazil?
Alessandro Lannes Skidmore College
Follow this and additional works at: https://creativematter.skidmore.edu/econ_studt_schol
Part of the Economics Commons
Recommended Citation Recommended Citation Lannes, Alessandro, "Does Corruptin Affect Productivity in Terms of Growth in Brazil?" (2017). Economics Student Theses and Capstone Projects. 48. https://creativematter.skidmore.edu/econ_studt_schol/48
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DoesCorruptinAffectProductivityinTermsofGrowthinBrazil?
AlessandroLannes
5/2/17
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Abstract
ThispaperexplorestherelationshipbetweenthecorruptionthatoccursinBrazilandits
effectonproductivityintermsofeconomicgrowth.Whiletherearemultiplefacetsof
corruption,currently,theonlymeasureofcorruptionisTransparencyInternational’sCorruption
PerceptionIndex(CPI).Thisindexismeasuredfrom0,mostcorrupt,to10,leastcorrupt.The
productivityofBrazilintermsofeconomicgrowthwillbemeasuredusingGDPpercapita.My
hypothesisisthatthecorruptactsthatoccurinBrazilhaveadirectnegativeinfluenceonthe
productivityofBrazil.Mainly,thisisthroughtherentseekerstheorythatpoliticalinfluencersin
Braziluseortakeresourcesfortheirpersonalgaininsteadofforthegoodofthepeople
withoutaddinganysortofbenefitforthepeople.Additionally,IwillbeusingtheSolowgrowth
modeltoexplainproductivityandgrowth.
Introduction
ThesparkthatignitedtherecessioninBrazilwasthePetrobrasscandalthatwasbrought
tolightin2013.OneofBrazil’smostinfamousmoneylaunderer’s,AlbertoYouseff,attempted
tosavehimselfbyhandingoverinformationthatledtothediscoveryofthePetrobrasscandal,
thebiggestinBrazilianhistory(Forbes,2015).Petrobrasisastate-runoilconglomerateand,
beforethescandal,itwasthe6thlargestcompanyintheworldandaccountedforalmost10%
ofBrazil’sGDP.Since2012,theirmarketcaphasdroppedbycloseto130billionUS$,someof
thatisduetothedecreaseinthepriceofoil,butit’smainlyduetothecorruptionscandal
(YahooFinance).
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Thisscandalwasthetippingpointthatledtothecurrentrecession.Afterthescandal
wasbroughttotheforefrontthevalueoftheBrazilianRealplummetedtoanall-timelowof
4.0665perdollar,fromitspreviouspriceof1.5Realsperdollar.Thismadeimportsmore
expensivethantheyalreadywere,addingtothealreadyrisingproblemofinflationinBrazil.
ThePetrobrasscandalcoupledwithrisinginflationanduncertaintyintheeconomycauseda
sharpdecreaseinforeigninvestmentsflowingintoBrazil.TheCentralBankofBrazil(BCB)met
inOctobertodiscussthecurrentissuesinBrazilanddeterminedthatmonetarypolicywouldn’t
havemuchofaneffectontheeconomyuntilthereisa“reductionofuncertainty,”meaning
thatuntilthePetrobrasscandalwindsdownthereisn’tmuchtheycando(BancoCentraldo
Brazil).ThisbringsinvestorconfidenceintheBrazilianeconomyclosetozero.
Politicalscandals,likethePetrobrasscandal,aren’tuncommoninBrazil.Corruptionhas
plaguedBrazilfordecades,ithascausedsomeofthelargesteconomicsetbacksBrazilhas
faced.OnnumerousoccasionsanalystspredictedthatBrazilwouldbecomethenexteconomic
superpower,however,corruptionhasheldthecountrybackfromachievingthiseconomic
superpowerstatus.
Whentalkingaboutcorruptionitshouldbemadeclearthattherearemultiplefacetsof
corruption.ThemostwellestablishedmeasureofcorruptionisTransparency’sInternational
measureofcorruption,thecorruptionperceptionindex(CPI).TransparencyInternationalisthe
globalcivilsocietyorganizationleadingthefightagainstcorruption.TransparencyInternational
classifiescorruptioninto3separatecategories:grandcorruption,pettycorruptionandpolitical
corruption,dependingontheamountsofmoneylostandthesectorwhereitoccurs.
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Thethreetypesofcorruptionare:
Grandcorruptionconsistsofactscommittedatahighlevelofgovernmentthatdistortpolicies
orthecentralfunctioningofthestate,enablingleaderstobenefitattheexpenseofthepublic
good.
Pettycorruptionreferstoeverydayabuseofentrustedpowerbylow-andmid-levelpublic
officialsintheirinteractionswithordinarycitizens,whooftenaretryingtoaccessbasicgoods
orservicesinplaceslikehospitals,schools,policedepartmentsandotheragencies.
Politicalcorruptionisamanipulationofpolicies,institutionsandrulesofprocedureinthe
allocationofresourcesandfinancingbypoliticaldecisionmakers,whoabusetheirpositionto
sustaintheirpower,statusandwealth.
Forthispaper,however,IwillbeusingTransparencyInternational’ssimplifieddefinitionof
corruptionbecauseitishardtodifferentiatewhereonetypeofcorruptionstopsandanother
starts.TransparencyInternationaldefinescorruptionas“theabuseofentrustedpowerfor
privategain.”
AnalyticalFramework
InordertounderstandeconomicgrowthandcorruptionIwillbeusingtwodifferenteconomic
models.Forgrowth,IwillbeusingtheSolowgrowthmodel.Additionally,Iwillbeusingrent
seekerstheoryinordertofurtherunderstandtheeffectsofcorruption,whichleadtoslow
economicgrowth.
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Inacorruptcountry,mostpoliticiansusetheresourcesavailabletothemfortheirown
individualeconomicgain.Thisisknownasrentseekingtheory,whereanindividualusesa
governmentsorcompany’sresourceforpersonalgainwithoutreciprocatinganybenefitto
society.Rent-seekerstheoryinvolvesanindividual,orpartyofindividuals,seekingtoincrease
theirshareofexistingwealth.Additionally,theseindividualsincreasetheirownwealthwithout
creatinganynewwealth.Thecaveattothistheoryisthatthereisanetlosstosociety.Thisis
accomplishedonlybymonopolies,andinthecaseofcorruption,thegovernmentisthe
monopoly.Ifwelookatgraph2,agraphofamonopoly,weobservethesignificantgain
accruedbyamonopoly.Thisgainistakenfromconsumers(society)butalsoleavesalossin
efficiency.Thisnoticeablelossinefficiencyisalsorealizedbysociety.Inthiscasesocietyisthe
peopleofBrazil.ResearchdonebyPaoloMauroconcludedthatcorruptcountriestendtospend
muchlowerratesoneducationandhealth,thisallowsgovernmentofficialstousethisextra
capitalfortheirowncorruptagenda.Duetotheinherentnatureofrentseekingbehavior,the
GDPpercapitawillstagnateordecreasesincewealthisbeingtakenawayfromsociety(Daveri,
n.d.).
ThesecondeconomicmodelbeingusedistheSolowgrowthmodel.Thismodel
specificallyfocusesontheoutputofthecountry,assumingthatitonlyproduces1good.Robert
Solowtheorizesthatoutputisaproductoftwofactors,laborandcapital.Inourcase,labor
referstothepopulationofBrazil.Anadditionalfactorthatcanhaveaneffectonoutputis
technology.Forinstance,wearealotmoreproductiveatfarmingbecauseoftheuseof
technologythatallowsustoharvestfruitsandvegetableswithlargemachinesinsteadofdoing
itbyhand.Atthesametime,thisproductivityfunctiondoesexhibitdiminishingmarginal
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returns,meaningthereisanoptimalcapitaltolaborratio.Additionally,itshouldbenotedthat
thismodelisprimarilyfocusedonlongtermeconomicgrowth(Solow,1956).
LiteratureReview
PaoloMauro,whoisoneofthebiggestcontributorstotheresearchofcorruptionhas
determinedthattheprimarycauseofcorruptionisrentseekingbehavior.Maurogivesmultiple
examplesofrentseekingbehaviorinducedbygovernments.Aslistedbelow:
TradeRestrictionsareaprimeexampleofgovernmentinducedformofrentseeking.Ifthereis
arestrictivelimitonhowmuchofacertaingoodcanbeimportedintothecountryeachyear
thenecessaryimportlicensesbecomeveryvaluableandimporterswillconsiderbribingofficials
whocontroltheirimports.Ingeneral,thisprotectsahomeindustryfromforeigncompetition
throughtariffs.Thiscreatesasemi-monopolyforthelocalindustry.Localmanufacturerswill
lobbyfortheestablishmentandmaintenanceofthesetariffs.Andsomemayevenbewillingto
bribelocalpoliticianstokeepthissemi-monopolygoing.Ifyouhaveanopeneconomy,with
freetrade,yourcountryisusuallyassociatedwithlowercorruptionlevels.Meaning,countries
tendtobelesscorruptiftheirtradeisrelativelyfreeofgovernmentrestrictionsthatcorrupt
officialscanabuse.However,thiscanalsobeseenasastrategytoboostalocaleconomy’sGDP
byforcingitspeopletobuylocallymadeproductsinsteadofimports.Thisstrategywasusedby
theUnitedStatesinthepasttoboosttheUSautoindustry.Itisworthnotingthat,inthelong
run,thisstrategywilldecreasecompetition,decreasingthepoweroftheconsumerand
inevitablyreducingorstagnatingthequalityoftheirproducts(Mauro,1997).
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Governmentsubsidiescanalsobeasourceofrentseeking.Previousstudieshaveshownthat
corruptioncanthriveunderindustrialpoliciesthatallowpoorlytargetedsubsidiestobe
appropriatedbyfirmsforwhichtheyarenotintended.Themoresuchsubsidiesareavailableto
industries,correlateswithahighercorruptionindexscore.Liketradingrestrictions,inthelong
runthiscanbeanissue,howevercountriesliketheUShaveusedsubsidiesinthefarming
industryfordecadesandtheUnitedStatesisknownasalowlevelcorruptcountry.
Pricecontrols,whosepurposeistolowerthepriceofsomegoodbelowitsmarketvalue
(usuallyforsocialorpoliticalreasons),arealsoasourceofrentseeking.Thesepricecontrols
createincentivesforindividualstobribeofficialstomaintainthelowpricesofsuchgoodsorto
acquireanunfairshareatthebelow-marketprice.Ontheotherhand,pricecontrolsare
regularlyusedbyeconomiestoensuretheprofitabilityofaproductforlowmarginproductsor
toensurethatcompaniesdon’ttakeadvantageofthepopulationintimesofcrisis.
Multipleexchangeratepracticesandforeignexchangeallocationschemesalsoleadtorent
seeking.Somecountrieshaveseveralexchangerates,oneforimporters,onefortourists,one
forinvestors,forexample.Differencesamongtheseratescanleadtoattemptsbypartiesto
obtainthemostadvantageousrate,althoughthisratemightnotapplytotheirintended
exchange.Multipleexchangeratesystemsareoftenassociatedbankingsystemsinwhichkey
bankshaveclosetiestothegovernment.Thisisdonesothatthegovernmentcanmakehuge
profitsbyarbitragingbetweenmarkets.Ifabankisstate-ownedthebankscanrationscarce
foreignexchangebyallocatingitaccordingtotheprioritiesofgovernmentofficials.Thisisabig
issueinBrazil,asmostoftheirbankingsystemisstate-owned.
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Lowwagesinthecivilservicerelativetowagesintheprivatesectorareasourceoflow-level
corruption.Whencivilservicepayistoolow,civilservantsmaybeobligedtousetheirpositions
tocollectbribesasawayofmakingendsmeet,particularlywhentheexpectedcostofbeing
caughtislow.ThisisaprimaryreasonwhymuchofBrazil’spoliceforceiscorrupt.Thisisa
constantissueinBrazil,aspoliceofficersaren’tabletofeedtheirfamilies,inturn,theyturnto
bribestomakeupforthatdeficit.
Naturalresourceendowments,suchasoil,goldandlumberareanotherexampleofasourceof
rentseekingbehavior,sincetheycantypicallybesoldatapricethatfarexceedstheircostof
extractionandtheirsaleisusuallysubjecttostringentgovernmentregulation,whichcorrupt
officialscanturnablindeyeto.Economiesrichinnaturalresourcesmaybemoresubjectto
extremerent-seekingbehaviorthaneconomieswithlittlenaturalresources(Roy,1970)
Sociologicalfactorsmaycontributetorent-seekingbehavioraswell.Publicofficialsaremore
likelytodofavorsfortheirrelativesinsocietieswherefamilytiesarestrong.Thisisconstantly
seenincorruptcountries,suchasVladimirPutingivingbuildingcontractstohisclosefriends
andfamiliesinsteadofthemostqualifiedcontractors.
Whiletheabove-mentionedformsofrentseekingare“loose”definitionsofcorruption,
asintheycanbeseenascorruptionbutalsoasgovernmentalstrategies.MariaPinottilooksat
anexampleofcorruptioninwhichshecomparesacorruptcountrieshigh-speedrailline
buildingprocesstoacleancountry’sprocessofbuildingahigh-speedrailline.Shecompares
thespendingofItaly’sgovernmentandFrance’sgovernmentonhighspeedtrainlines.Both
countriesusedprivatefirmsforthejob,however,Italy’sgovernmentisknowntobemore
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corruptthantheFrance’sgovernment.Constructiononthe125kmMilan-Turninstretchstarted
in2002andendedin2009,thetotalcostoftheprojectwas€7.8billion(€62million/km).The
constructiononthe300kmParis-AlsaceLorrainestretchalsostartedin2002andendedin
2007,thetotalcostoftheprojectwas€5billion(€16.6million/km).HadtheItalianroutebeen
builtatthesamecostoftheFrenchrouteitwouldhavecostthemonly€2billion,insteadofthe
€7.8billionpaid.NotonlywastheMilan-Turinroute4timesasexpensiveastheParis-Alsace
Lorraineroutebutitalsotooktwoyearslongertobuild.Ontopofthat,theprivatecorporation
received3.6%ofthetotalvalueoftheworkinthecaseoftheItalian’sand2%inthecaseofthe
French,that’sclosetodoubletheamountforacontractthatcostquadruplethepriceofthe
Frenchcontract(Cristina,2009).
Sinceit’salwayshardtomeasuretheeffectsofcorruptionbecauseusuallythere’smore
inputinagivensituationthanjustcorruptionit’shardtohaveaconcretemeasurementfor
corruption.However,inthiscasecorruptionistheonefactorthatshowsthedifferencesinthe
costsofpublicworksinItalycomparedtoothercountries.Thebelowgraphshowstheeffectof
alltheinefficienciesthatcorruptioncausesonproductivity.Thegraphbelowisameasureof
theefficiencyoftheavailablelaborandcapitalusedintotalproduction,thisisknownasTotal
ProductivityFactors(TPF).Inthiscase,theTPFofItalyisbeingcomparedtothatoftheUnited
States,Germany,andFrancefrom1985to2014.Asseeninthegraph,Italy’sproductivitybegan
toslowdownandeventuallydeclinearound1995,rightwhentheItalianpoliticalsystembegan
toprotectandpasslawstoprotectcorruption.HadItalyfollowedthepathoftheUnitedStates,
intermsofproductivity,itsGDPwouldbe22%higherthanobservedin2014(Cristina,2009).
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Figure1:TPF(TotalProductivityFactors)(Cristina,2009)
Thisgraphclearlyshowstheeffectofcorruptiononacountry’sproductivity.Whilethere
couldobviouslybeadditionalfactorscausingsuchadrasticdrop,itismainlyduetothe
presenceofcorruption.Asyoucanseefromfigure1,noneoftheothercountriesdeclineduntil
around2008,whichcanbeblamedontherecession,theuniformityofthelinesshowaclear
indicationthatcorruptionisthecauseforthechangeintheproductivityinItaly.
EventhoughyoucanclearlyseethecauseofcorruptiononItaly’seconomyinfigure1,
wehaveyettodeterminewhattheeffectofcorruptionisonamicrolevel.PaoloMaurowas
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oneofthefirsttodeterminethatcorruptionlowersprivateinvestment,therebyreducing
economicgrowth.Thisobservedreductioningrowthdeterminesalowerproductivityfactorin
thesecorruptcountries.PaoloMaurodidthisbylookingatninefactorsthatanyfirmwouldbe
interestedinwhenselectinganewmarkettoenter.TheninefactorsPaoloMaurousedwere:
Politicalchange–institutional,politicalstability,probabilityofoppositiongrouptakeover,
stabilityoflabor,relationshipwithneighboringcountries,terrorism,legalsystem–judiciary,
bureaucracyandredtape,corruption.Hethendeterminedthatafirm’sperceptionofpolitical
uncertaintyhelpsdeterminetheinvestmentrate.Afterwards,hewasabletodeterminethat
theperceivedmostpoliticallyuncertaincountrieswerealsothecountriesthatwerethemost
corrupt.Thisleadtohisconclusionthathighlevelsofcorruptionleadtolowinvestmentrates,
whichultimatelyleadstoalowerGDP(Mauro,1997).
TheissuewithPaoloMauro’sargumentisthathis9factorsareverybroadandcan
rangedrastically.Brazilisonbothspectrums,whenlookingattheninefactorsMaurousesto
determinepoliticalinstability.ThereisalowchanceofaninstitutionalchangeinBrazil’s
politicalsystem,however,itisimportanttorecognizethatlessthan60yearsagotheBrazilwas
ruledbyamilitarydictator.Brazildoesnothaveanytoxicrelationshipswithitsneighbors,nor
doesithavemuchterrorism.TheefficiencyofthejudiciarysysteminBraziliscorrelatedwith
thecorruptioninBrazil,youcanpaytohaveyourproblemresolvedatanexpeditedrateifyou
knowtherightpoliticalofficials.Overall,Brazilhasabigissuewithpoliticaluncertainty,the
recentPetrobrasscandaldroveDilmaRoussefffromofficeandputtheoppositionpartyin
power.ThestreetsofBrazilwerelitteredwithprotestorsthroughouttheentireprocess,calling
forsystemicchangetothecorruptsystemthatBrazilcontinuestoleechonto.
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InBrazilspecifically,itisevidentthatcorruptionerodesthepillarsofdemocracy,
underminestheethicalvaluesofindividuals,andexactsahighpriceonthegrowthand
competitivenessoftheeconomy.Marketsaredominatedbydistortionsandinefficiencies,
affectingthecountry'scompetitiveness.
InMariaPinotti’scontinuingresearchshedeterminesthatcorruptioninvolvesprimarilythree
variables:theopportunityfortheillegalacttooccur,thechancethatthecorruptactionwillbe
discoveredandthelikelihoodoftheperpetratorbeingpunished(Cristina,2011).Forexample,
intheBrazilianpublicadministrationtherearemanyopportunitiesforcorruption.Thereare
morethan20thousandpositionsincommissionforwhichthepresidentoftheRepubliccan
appointserverswithoutpublicapproval.Thesepositions,atleastinpart,arefilledbypolitical
patrons,indisregardofthecriteriaoftechnicalcompetence.
ThisrelatestoJohnMacraeargumentthatcorruptionhasalottodowithgametheory
andprisonersdilemma.Ingametheory,youalwayspickthemostoptimaloutcome,knownas
theNashequilibrium.Ifyou’reabletobenefitmorebybeingcorruptandthere’salowriskof
beingcaughtyou’regoingtopickthatoptimaloutcome.Theproblemwithcorruptionisthatit’s
alwaysagameofprisoner’sdilemma,meaningthatifbothpartiesdon’tsayanythingyou’re
notgoingtogotojail,however,ifonepartytalksandtheotherdoesn’toneismorelikelytoget
introuble.Additionally,ifbothconfessthenbothareintrouble.Sincecorruptdealsarealways
doneinprivatethereisalowriskofbeingcaughtaslongasbothpartiesstayquiet(Macrae,
1982).
WhileMaurowasabletodeterminethatforeigndirectinvestment(FDI)wasaffectedby
thelevelofcorruptionofacountry,MariaPinottiwasabletodeterminetheexacttradeoff
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betweencorruptionandFDI.Ithasbeenshownthatreducingacountry’slevelofcorruptionby
ahalfapointincreasedeconomicgrowthby1%eachyearandincreasedinvestmentlevelsby
4.9%(Cristina,2009).
However,asMaurostates,rootingoutcorruptionisdifficultbecausewhenacountryis
knowntobecorrupt,corruptioniswidespread.Itjustdoesnotmakesenseforindividualsto
attempttofightit,evenifeverybodywouldbebetteroffifcorruptionweretobeeliminated.
Forexample,thecaseofacivilservantinanadministrationwhereeverybody,includinghis
superiors,areverycorrupt.Itwouldbedifficultforthiscivilservanttodeclineoffersforbribes
inexchangeforfavors,becausehissuperiorsmayexpectaportionofthebribeforthemselves.
Additionally,ifcorruptioniswidespreadagentsarelesslikelytobecaughtorprosecutedfor
corruption.“Ifmanypeoplesteal,thentheprobabilityofanyoneofthembeingcaughtwillbe
low(Mauro,2002).”
Bycontrast,inbureaucraciesthataregenerallyhonest,arealthreatofpunishmentdeters
individualcivilservantsfrombehavingdishonestly(Againgoingbacktoprisonersdilemmaand
gametheory).Thisisanexampleofastrategiccomplementarity,wherebyifoneagentdoes
somethingitbecomesmoreprofitableforanotheragenttodothesamething.
However,politicianshavetotakeintoaccountthefactthatiftheyhurttheeconomycitizens
willnotreelectthem,whichmeansthey’llnolongerbeabletocollectbribes.Thismeans
politicianshavetodecidewhattypeofprivatebribesystemtheywishtosetup.PaoloMauro
usesanexampleoftwopoliticianspartofthesamegovernment,politicianAandpoliticianB.
PoliticianAisverycorruptandhasestablishedaprivatebribecollectionsystempurelyforhis
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owngain.Theneedtopaysubstantialbribesreducestheincentiveforinvestmentandimposes
ontheeconomicgrowth.Oncecitizensrealizethateconomicgrowthisbeingharmedbythe
corruptgovernmentthey’llbelesslikelytoreelectthegovernment,eveniftheydon’tknow
whoexactlyisatfaultforthecorruptactsthey’llstillbelesslikelytoreelectthecurrent
government.This,inturn,reducestheamountoftimepoliticianBhastoobtainthegainfrom
bribes.ThiswillmakepoliticianBmoreinclinedtoextractalargershareofcurrentoutputsand
disregardanyadverseeffectsonfutureoutputs.Inotherwords,politicianBwillwanttoobtain
aslargeofaportionofthecaketodayanddisregardpoliciesaimedatincreasingthesizeofthe
caketomorrow,becauseheknowsthatthegovernmentheparticipatesinwillbeousted.This
showshowcorruptcountriescanspiraloutofcontrol,goingfrompoliticianAandBtofuture
politicianAandBwhowillbewantingtogaintheirsharewithoutanyregardforthefutureof
thecountry,leavingittothenextversionsofpoliticianAandB.Thisleadstolessbeliefinthe
governmentandcausesthegovernmenttoloseitseffectivenessandultimatelydecreasethe
productivityoverall(Mauro,2002).Again,thisrelatesbacktorentseekerstheory,both
politicianAandBarelookingtoboosttheirowneconomicstatuswhilereturningnothingback
totheeconomyforitscitizens.
OmerGokcekusfoundawaytomeasurethelevelofcorruptionofacountrythrough
rentseeking.Hewasabletodothisthroughconspicuousconsumption,whichiswhen
consumerspurchaseagoodnotforitsintrinsicvaluebutforitssignalingvalue.Takethe
examplegivenbyGokcekus,thesilverspoon.Ifyoubuyahandmadespoonithasnogreater
utilitythanamachine-madespoon.Evenfurther,youcanbuyasilverspoonthatismadeoutof
aluminumorourofsilver,neitherhasmoreutilitythantheother.However,peoplestillbuy
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silverhandmadespoonsallthetime,eventhoughtheyarenomoreusefulthanamachine
madealuminumspoon.Gokcekuswasabletoapplythesameideaofconspicuousconsumption
oncorruptionusingluxurycars.Gokcekustookanunbalancedpaneldataof20OECDcountries
between2004and2010,usingMarklinesAutomotiveInformation,heidentifiedcarseitheras
luxuryornon-luxury.Heusedthedataoftotalluxurycarsalesinacountry,coupledwiththe
levelofcorruption(usingtheCPIscore),andtheaveragepercapitaincome.Hewasableto
determinethatluxurycarsalesare191%higherinacountrywithahighperceivedcorruption
level.Inanexample,fortheyear2007,theaveragepercapitaincomeintheNetherlandswas
$46,500andtheCPIscorewas9(meaningthecountryisveryclean)andtheluxurycarsales
were48.8per10,000people.However,inthesameyear,thepercapitaincomeinGreecewas
around$25,000andtheCPIscorewas4.6,withluxurycarsalesof33.4per10,000.HadGreece
hadasimilarCPIscoretotheNetherlandstheirluxurycarsaleswouldhavebeen11.5per
10,000people,nearlyathirdofwhatitactuallyis.Gokcekuswasabletoconcludethatthereis
apositiverelationshipbetweenthelevelofcorruptionandconspicuousconsumption
(Gokcekus,2014).Thishelpssolidifytheargumentthatrentseekingtheoryisrelatedto
corruption.
Guptaarguedthatcorruptionreducesgrowthandinvestmentandredirectsforeign
directinvestmenttowardscountrieswithlowerlevelsofperceivedcorruption.Guptaalso
concludedthathighercorruptionisassociatedwithhigherincomeinequality.Heexplainedthis
byusingtherent-seekerstheory,whereaselectfewincreasetheirwealthanddon’tcontribute
anynewwealth.Thepaperalsobacksupthetheoryofincreasedinequalityamonghighly
corruptcountriesusingTransparencyInternational’scorruptionperceptionindex(CPI)and
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foundthatthecountrieswiththehighestlevelsofperceivedcorruptionalsohadthehighest
levelsofpoverty(Gupta,1998).Guptausesevidencefrompreviousstudiestobackuphiswork,
makinghisfindingsmorecredible.Thiscanbeshownbylookingatthemostcorruptcountries
andmeasuringtheirpovertyrates,thefindingsareconcurrentwithGupta’sfindings.This
showsthatnotonlydoesrentseekerstheorydecreasetheeconomicgrowthofacountrybut
thatitalsocreatesincomeinequalities.
SimonKuznetstookanotherapproachattryingtoexplaintheinequalitydisparityof
corruptcountries.Hisargumentassumesthatcountriesthataremorecorrupthaveimport
tariffsthatlocalcorruptenterprisesbribedgovernmentofficialstoenact.Thisallowstheselocal
companiestoputtheirdesiredpriceonspecificproducts,inotherwords,increasingtheprice.
Thistakesawayfromlocalconsumers,causingthemtospendmoreonspecificproducts,giving
themlessmonetarycompensationtosave(Kuznets,1955).Thisdecreasesyourwealth,since
thelessyoucansavethelessyouhave.
AnotherstudydonebyPaoloMauro,hewasabletodeterminethatcorruption
adverselyaffectedthegovernmentspendingoneducation.Hedidthisbystudyingthe
compositionofgovernmentexpenditureandhowcorruptionaltersgovernmentexpenditure.
Previousresearchdeterminedthatschoolenrollmentratesandeducationalattainmentplay
considerablerolesindeterminingeconomicgrowth.ThisparallelsoneofMariaPinotti’s
conclusionsthattheeducationlevelofitspeopleisamajorindicatorinthwartingcorruption,
backingitupwithmultipleacademicjournalsthathavecometosimilarconclusions(Cristina,
2009).Maurofoundthatcorruptionaltersthecompositionofgovernmentexpenditure,more
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specifically,byreducingitsspendingoneducation.Maurogoesontoexplainthatthishappens
becauseoftheensuingneedforsecrecywhenpreformingcorruptacts.Onewaytodothisisto
investgovernmentexpenditureintospecialized,hightechnologygoods,whoseexactvalueis
hardertopinpoint.Thisallowsofficialstoskimoffthetopbecausetheexactvalueofsucha
highly-specializeditemisn’tfullyknown.Insteadofofficialsinvestingineducations,which
requiresfairlylow,maturetechnologywhichisaloteasiertocalculatethevalueof.Throughhis
economicmodel,hewasabletofindsignificantevidencethatcorruptionisnegatively
associatedwithgovernmentexpenditureoneducation.Inaddition,Maurowasabletofind
slightevidenceofanassociationbetweencorruptionandgovernmentexpenditureonhealth
(Mauro,1998).
Dzhumashevhasdoneadditionalresearchstudyingtherelationshipbetween
governmentspendingandcorruptionsanditseffectsoneconomicgrowth.Heconcludedthat
inlow-incomecountries,wherethewageislow,resultedinlowrentseekingandcorruption
costs.However,increasesinpublicspendingencouragesmorerentseekingandcorruption.
Theseincreasesinpublicspendingledtoadeclineinthegrowthratebecauseoftheincreased
rentseekingandcorruption,resultinginagreatersocialloss.Additionally,hedeterminedthat
low-incomeeconomieswithhighincidenceofcorruption,thesizeofgovernmentspending
shouldbelessthanforaneconomywithahigherincomeandalowerincidenceofcorruption.
Healsostatesthatgovernmentswithlow-incomeeconomiesandhighamountsofcorruption
were18.5%largerthanoptimal.Dzhumashevconcludesthatthisincreaseingovernment
spendingandcorruptionismorelikelytoreducegrowthratesbyreducingtheamountof
inflowsofforeigninvestment.Dzhumashevalsopointsoutthatthesehigherthanoptimal
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governmentspendingnumbersleadtoevenmorecorruption(Dzhumashev,2013).Thisisan
issueinBrazil,theirgovernmentcontinuestoincreaseandspendinginspecificsectors,
howevertheeffectivenessofthegovernmentorthebenefitsthepeopleofBrazilshould
receivefromalargergovernmentarenotseen.
WhileDzhumashev’sargumentsabouttheincreaseinrentseekingbehaviorand
corruptioninlowincomeeconomieswithincreasedgovernmentexpenditureaddup,it’salittle
shakyonhowhedeterminedtheoptimalsizeofagovernment.Hedeterminesthatalow
incomeeconomyis18.5%largerthanoptimaldoesn’tcompletelyaddupashedoesn’tspecify
howhedeterminedtheoptimalsizeofthegovernment.Additionally,Dzhumashevstatesthat
anincreaseinrentseekingandcorruptionduetoincreasedgovernmentexpenditurewould
declineinthegrowthrate.Hearguesthatitdecreasesduetorentseeking,however,henever
specifieshowrentseekingdecreasesthegrowthrate.ThroughthisextensiveliteraturereviewI
havebeenabletoconcludethatrentseekingbehaviorreducesgrowththroughmultiple
avenues,suchasthedecreaseingovernmentspendingoneducation.However,Dhumashev
givenoevidenceonhowrentseekingwilldecreasethegrowthrate.
WhereDhumashevleftoff,Lambsdorffattemptstoconnecttheideathatcorruption,or
rentseekingcausesadecreaseinproductivityorgrowth.Lambsdorffarguesthatcorruption
rendersgovernmentsincapableorunwillingtoachievepublicwelfareasaresultofinefficiency,
wastefulrent-seekingordistortedpublic.Theallocationofcapitalgoodswillnotbeoptimal
whenaffectedbycorruptionbecausethoseprojectsthatpromiselargeside-paymentsand
exhibitlowrisksofdetectionarepreferredtothosethatbenefitthepublicatlarge.Thebest-
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connectedcontractorsandthosemostwillingtoofferbribesarepreferredtothoseofferingthe
bestproduct.Theeffortlevelofpublicservantssuffersfromadverseincentivesbecause
creatingartificialbottleneckscanincreasetheneedforpayingspeed-money(moneyusedfor
bribes).Themostvisiblesignoftheadverseimpactofcorruptionare‘white-elephantprojects’,
projectsthattotallydisregardpublicdemandorthatarewreckedshortlyaftercompletion.
ThereisexistingevidenceofanadverseimpactofcorruptionontheratioofinvestmenttoGDP.
Thereisalsoanadverseimpactofcorruptiononforeigndirectinvestmentsandcapitalinflows.
Bothofthesepointshavebeenprovenbypreviousliteraturereviewresearch.Thisarticle
furtherstheeffectofcorruptiononproductivitybydeterminingthatcorruptiondecreasesthe
productivityintermsofGDPtocapitalstockratio.Thecapitalstockratioisdeterminedusing
theperpetualinventorymethod.Theabsenceofcorruptionispositivelyassociatedwiththe
ratioofGDPtocapitalstock.Thisindicatesthatcorruptionreducestheproductivityofcapital.
Anincreaseincorruptionby1pointonascalefrom0(highlycorrupt)to10(Veryclean)lowers
productivityby2percent.ThiscanbeseeninthecaseofTanzania,whichloweredits
corruptionscoreby6pointsonTransparencyInternational’scorruptionperceptionindex(CPI,
themostwellknownwaytomeasurecorruption)andincreaseditsGDPbymorethan10
percentofthetotalcapitalstock(Lambsdorff,2003).
Insomeformoranotherallofthejournalarticlesdiscussedabovehavecometothe
conclusionthatcorruptionisbadforalocaleconomyasawhole.However,Leffdisputesthis,
insisting,thatcorruptionallowsforindividualstobypassbureaucraticdelayandclaimsthat
governmentemployeeswouldworkharderinordertolevybribes.
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Leffdefinescorruptionas“anextra-legalinstitutionusedbyindividualsorgroupstogain
influenceovertheactionsofthebureaucracy.”Lefflimitshisargumentofcorruptacts
furtheringeconomicdevelopmenttooneparticulartypeofcorruption“namely,thepracticeof
buyingfavorsfromthebureaucratsresponsibleforformulationandadministering
government’seconomicpolicies.”Leffarguesthatthisformofcorruptionaidseconomic
developmentintwodistinctways.First,corruptpracticessuchas“speedmoney”wouldenable
individualstoavoidbureaucraticdelay.Second,thegovernmentemployeeswhoareallowedto
levybribeswouldworkharder,especiallyinthecasewherebribesactasapiecerate(Leff,
1964).However,Leffdoesmentionthattheflowofprivatecapitalandtechnicalskillswas
insufficientforpromotinglarge-scalegrowth.
Leffalsodistinguishesbetweenbureaucraticcorruptionandbureaucraticinefficiency.
Referringcorruptionto“extra-legalinfluenceonpolicyformulationorimplementation(Leff,
1964)”.Inefficiency,however,referstonotachievingmaximumproductivity,ormakingthe
bestuseofyourresources.Thisargumentisdifficulttofollowbecauseperformingacorruptact
canbeconsideredanallocationofyourresources.Beggingthequestion,iscorruptionreallythe
bestuseofyourresource?It’shardtoarguethatperformingacorruptactisthebestuseof
yourresource.Rentseekingbehaviorislinkedtocorruptionandrendseekingisnotanefficient
useofyourresource.ThiscanbeexemplifiedbyKruegerswork.Kruegergivestheexampleof
tryingtoobtainanimportlicense.Ifyouareacorruptindividual,youwillattempttoexpedite
theprocessofacquiringthislicensebybribinganofficial.However,ifweconsidertimea
valuableresource,thefirstcorruptofficialmightnotbetheonlyonecompetingforalicense
through“extra-legal”means.Thiscausesaninefficiency,astheindividualwhoauthorizesthese
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licenseswillbebackatsquareonebecausehe/shecan’tgiveoutalllicensesatonce(Krueger,
1974).Thisposesthequestion,ifthebestuseoftheresourcesavailabletothecorrupt
individualsiscompetingonlicesnses.
Additionally,throughLeff’sdatafindingsitwasdeterminedthatcountries,onaverage,
withhigheramountsofcorruptiondotendtogrowatafasterratethancountrieswithlower
corruptionscores.Thiscanbeexplainedbyconvergencetheorem.Countrieswithhigher
corruptionarealotsmallerthancountrieswithlowercorruptionscores.Convergencetheory
statesthatsmallercountrieswillgrowatfasterratesthanlargercountriesduetodiminishing
returns.
Additionally,JohMacraearguesagainstLeff’spoint,stating,thatdelaysarenomorethe
causeofcorruptionthantheconsequenceofit.“Delaysprovideanindicationofthe‘shadow
price’ofanarrangement.Therewillbedelaysbeforethearrangementisnegotiated,butthe
contractingofthearrangementwillpresumablybringthesedelaystoanend.Althoughbribery
byoneindividualorfirmmayleadtoamoreefficientresolutionofthatindividual’sorfirm’s
problem,thiscannotbesoforeveryone.Ifeveryoneresortstobriberynoonewillgainmuch,
yettheunderlyingproblemsmotivatingthebribing–queues,greedformonopolyprofits,
impatienceinfrontofstructuralinefficienciesallremain(Macrae,1982).”
Mostoftheliteraturetendstosupportthetheoriesofotherliteratureusedinthis
study.OneexceptiontothisistheLeff’spaper,aspreviouslydiscussed.Therearealsosome
dissimilaritiesbetweenpapersthatsharesimilartheories,forinstance,PaoloMauromentions
thatinthepresenceofcorruptionsomebusinessmenareoftenmadeawareofupfrontbribes
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requiredbeforetheprojectevengetsgoing.Therefore,businessmenofteninterpretthisform
ofcorruptionasnecessarytax.Eventhoughthistaxcanbeseenitcanalsobeharmful,given
theneedforsecrecyandtheuncertaintythatthebribe-takerwillfulfillhispartofthe
agreement.Thisdiminishesthebriber’sincentivetoinvest,however,thisisacommonpractice
inhighlycorruptcountries(Mauro,1997).However,JohnMacraeseethis“tax”completely
differently.ToMacrae,theideathatthesebribesareanintegralanddeeply-rootedmethodby
whichmenmakedecisionsintheThirdWorldandconsiderthemcostsdoesnotlineupwith
Macrae’sideologies.Macraeclaimsthatthesebribesshouldn’tbeseenasincurredcostsbut
insteadasprofitmotives.Itcontradictstheviewsthatcapital-richcountriesofbeingacost.Ifa
capital-richcountryisgainingprojectsorpositionsincapitalpoorcountriesitshouldbeseen
moreasaninvestment.Thisisbecauseyou’reexpectingtoseereoccurringbenefits,whichyou
wouldn’tnormallyexpectfromacost(Macrae,1982).Whilethisisaminordetailwhetherthis
isseenasacostoraninvestmentdrasticallychangestheundertone.Ifit’sseenasan
investment,you’reexpectingtoyieldcontinuousreturnsandcouldpossiblyseethisasan
opportunity.However,ifyouseethisasacostyoumightthinkofitasataxthatisjustapartof
doingbusinesswiththeotherparty,whichisn’ttruebecauseyou’reexpectingsomethingin
return.
Toreview,throughpreviousresearchwe’vebeenabletodeterminethatrentseeking
behaviorislinkedtocorruption.Thishas,inturn,changedthecompositionoftheof
governmentexpenditure,aspublicofficialstendtoinvestgovernmentspendingintohigh
technology/newtechnology,asitishardtopinpointtheexactpriceofnewertechnologies.
Thistakesspendingawayfrommature,lowtechnology,sectorssuchaseducationwherethe
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costsareknown.Previousliteraturehasalsodeterminedthatanincreaseintheeducationlevel
ofitscitizenswoulddecreasethelevelofcorruption.
Methodology
Sample
Thegoalofthisstudyistodeterminewhethercorruptioninfluencestheeconomic
growthofBrazil.Inthisstudy,GDPpercapitaofBrazilisthedependentvariable.Sincethereis
noformalwaytomeasurecorruption,Iwillbeusingaperceivedscoreforcorruption.The
score’scomefromTransparencyInternational,theleaderinthefightagainstcorruption.The
perceivedscorebeingusedistheCorruptionPerceptionIndex(CPI),whichisanindexmeasure
fromascaleof0to10.0meaningyouarethemostcorruptand10beingthecleanestcountry.
SincethisisonlyaperceivedindexandhasnotrueequationIwillbemeasuringseveralother
factorstodeterminetheimpactcorruptionhasoneconomicgrowth.Onemeasurementthat
relatesbacktorentseekerstheoryistheincomeinequalitywitnessedinmorecorrupt
countries.Itiswellknownthatincorruptcountriestheincomedisparitybetweentherichest
andpoorestisveryapparent.Thisdirectlyrelatestorentseekerstheory,astheindividualsin
powerusethoseresourcesfortheirownpersonalgainwithoutaddinganybenefittothe
economyforthepeople.InordertofurtherobservetheeffectorcorruptionIwillalsobe
testingthegovernmentspendingofBraziloneducationasapercentageofGDP.This,again,
directlyrelatestorentseekerstheoryascorruptofficialstendtospendlessoneducation
(officialstakecapitalfromtheeducationsector)inordertofundtheirownendeavors.Thisis
difficulttoprovebecausethese“endeavors”corruptofficialsparticipateinarekeptinsecret.
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However,previousresearchdonebyMaurohasdeterminedthatmorecorruptcountriestend
tospendlessoneducation.Anothervariableistheunemploymentrate,whichdirectlyrelates
toSolowgrowthmodel.Ifyouhavelessthanoptimalamountoflaborintheworkforcethen
youreconomyisnotoptimallyproductive.Thistranslatesintostagnantordecreasingeconomic
growth.Additionally,Iwillbeusingforeigndirectinvestment(FDI)tomeasurecapitalasa
factorofeconomicgrowth.ThisappliestotheSolowmodelasanincreaseincapital,inmycase
FDI,increasestheproductivitywhichleadstoeconomicgrowth.Alldata,exceptfortheCPI
score,hasbeentakenfromtheWorldBank.
Ihypothesizethatrentseekingbehavior,whichhasledtoanincreasedincomedisparity
betweentherichandpoorandalowpercentageofgovernmentexpenditurebeingspenton
education,willleadtostagnatingordecreasingeconomicgrowth.Previousresearchhas
alreadydeterminedthatrentseekingbehavior,observedinmorecorruptcountries,hascaused
lowerlevelsofspendingoneducationandgreaterincomeinequality.
Additionally,Ihypothesizethatanincreasedunemploymentratecoupledwithlower
foreigndirectinvestmentwillleadtoslowereconomicgrowth.Previousresearchhasalready
determinedthatmorecorruptcountrieshavelowerlevelsofFDI.
Measures
Thereare6measuresbeingusedinthismodel.Thedependentvariableinthismodelis
GDPpercapitameasuredinUS$anddefinedasgdppci.Thereare5independentvariablesinthis
model.ThefirstistheCPIscore,which,aspreviouslymentioned,isaperceivedscoreof
corruptionanddefinedascpii.ThesecondindependentvariableistheGiniCoefficient,which
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measuresthelevelofinequalityofacountry.TheGiniCoefficientisdefinedasGinii.TheThird
independentvariableisunemploymentrate,whichiscalculatedasapercentageanddefinedas
Unemployi.ThefinalindependentvariableisgovernmentspendingasapercentageofGDP,
whichisdefinedasGovtEi.
Design
Model
Model1: gdppci=β0+β1cpii+β2Ginii+β3Unemployi+β4FDIi+β5GovtEi+εi
SampleRegression
Results
Thissectionanalyzestherelationshipbetweenproductivityandseveralfactorsthat
relatetocorruption.Thisstudyfindsthattheunemploymentrate,levelofforeigndirect
investment,andpercentageofgovernmentexpenditurespentoneducationhaveadirecteffect
ontheproductivityofBrazil.
Table1showstheresultsbetweenproductivityandmultiplefactorsthatrelateto
corruption,inthismodel,Unemployi,FDIi,andGovtEiareallstatisticallysignificant.Thismeans
thatahigherunemploymentrateandalowerlevelofFDIwilltranslatetodecreased
productivity,whichwillinhibiteconomicgrowth.Additionally,ithasbeendeterminedthat
lowerpercentagesofgovernmentexpenditurespentoneducationalsodecreasesthe
productivityofBrazil,whichmydatasupportsaswell.
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However,notallvariablesbeingtestedwerestatisticallysignificant.Mostnotably,the
CPIscore,whichisaperceivedindexofthelevelofcorruptioninBrazil,wasnotstatistically
significant.Thisissurprisingbecausethisscoredirectlyreflectsthelevelofcorruption
witnessedinBrazilandhasnoeffectonproductivity.Additionally,thelevelofincome
inequalityhadnoeffectontheproductivity.Thisissurprisingaspreviousresearchhas
determinedthatlargeincomeinequalitycanbeobservedincountrieslabelledasmorecorrupt.
Itshouldalsobenotedthat,eventhoughtherewasnomulticollinearitydetectedoverall,there
wasmulticollinearitydetectedbetweenthepercentageofgovernmentexpenditurespenton
education,theginicoefficient,andtheunemploymentrate.Ihypothesizetheexplanationfor
thismulticollinearitybetweentheginicoefficientandunemploymentexistsbecausethelower
theginicoefficientusuallytranslatestolowerunemploymentlevels.Additionally,Ibelievethat
theCPIscorewasinsignificantbecausetherewasnomajorchangeintheCPIscorethroughout
mydataset.ThisjustmeansthatBrazilhasbeenperceivedascorruptsincethestartofmydata.
WhiletheCPIscorestayedconstanttheothervariablescontinuouslychangedinvalues.
Table1:
Variables Model1
CPIi 71.1%(.711)
Ginii 54.6%(.546)
Unemployi .4%***(.004)
FDIi .1%***(.001)
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GovtEi .1%***(.001)
Constant 735.81
R2 99.7%
Allstandarderrorsareinparentheses
*indicatessignificanceat10%levelofsignificance
**indicatessignificanceat5%levelofsignificance
***indicatessignificanceat1%levelofsignificance
Table2:
Variables VIF
GovtEi 6.24
Ginii 6.04
Unemployi 5.38
FDIi 4.49
CPIi 2.06
MeanVIF 4.84
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Diagnosis
ThepurposeofthisstudywastodeterminewhetherthecorruptioninBrazilhasinfluencedthe
productivityintermsofeconomicgrowth.Thesignificanceofunemployment,FDI,and
percentageofgovernmentspendingoneducationprovesthatthereisacorrelationbetween
productivityandcorruptioninBrazil.Throughpreviousliteraturewewerefirstableto
determinethatrentseekerstheoryiscorrelatedtocorruptionthroughconspicuous
consumption.Knowingthatrentseekingbehaviorandthelevelofcorruptionarecorrelated,
wewereabletodeterminethathighercorruptionwasassociatedwithhigherincome
inequality.Again,thiscouldbeexplainedthroughrentseekerstheory.Themorecorrupta
countryisthemorelikelyindividualsinpoweraretotakepublicresourcesandusethemfor
theirowneconomicgain,withoutreciprocatingthebenefittothepeople.Additionally,
previousresearchdonemyPaoloMaurodeterminedthatincreasedlevelsofcorruption
decreasesthelevelofFDIofacountry.Itisalreadyknownthatforeigndirectinvestmentisa
factorofgrowth,thecorrelationbetweenproductivityandFDIofmymodelstrengthensthis
argumentevenmore.
Therentseekingbehaviorexhibitedbyindividualsinpowerincreasestheincome
disparityasonepartygetsrichofpublicexpenditure,whiletheotherstrugglestogetby.While
previousresearchalignswithmyhypothesisthatahigherGinicoefficientcorrelateswithlower
levelsofproductivitythiscorrelationwasnotobservedinmymodel.Thiscouldbedueto
multicollinearity.Thenextbitoftheliteraturesolidifiestherelationshipbetweenthelevelof
corruptionandthelevelofgovernmentexpenditurespentoneducation.Priorresearch
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determinedthatschoolenrollmentandeducationalattainmentplayrolesindetermining
economicgrowth,additionallyPinotticoncludedthatthelevelofeducationaidsinthwarting
corruption.Thisisinlinewithmyhypothesisthatlowerpercentagesofgovernment
expenditurespentoneducationdecreasestheproductivityandgrowthrateofBrazil.My
hypothesisshowsthatthereisacorrelationbetweenpercentageofgovernmentexpenditure
spentoneducationandproductivity.Thissolidifiesthetheoriesofpreviousresearch.
Previousliteraturehasbroughtoutobservationsofrentseekingbeingcorrelatedto
corruptionandincomeinequality.Theliteraturehasalsobeenabletopinpointcorrelations
betweeneducationandcorruption.Myadditiontotheresearchhasshownthatnotonlydowe
observearelationshipincomeinequality,educationlevels,FDIandcorruption,butwecanalso
observearelationshipbetweenincomeinequality,educationlevels,FDIandproductivity.This
translatestothelevelofcorruptionbeingdirectlycorrelatedtothelevelofproductivityofa
countryintermsofgrowth.However,thereareacouplethingstonote.Itisunclearwhether
thelevelofcorruptionaffectstheproductivityorwhetherthelevelofproductivity(orgrowth)
affectsthelevelofcorruption.Evenwiththevariablesthiscangobothways.Brazilcouldhavea
decreasedlevelofcorruption,whichincreasestheFDIbroughtintothecountry,raisingits
productivity.Orthelevelofproductivitycouldincrease,causingmorefirmstoinvestintothe
Brazilianeconomy,causingadecreaseincorruption.It’shardtoknowwhichvariablecauses
whichvariabletochange.Additionally,itcouldbesomethingentirelyunrelatedthatdecreases
thelevelofcorruption.It’shardtoknowbecauseactsofcorruptionaren’tpublicinformation
andarekeptsecret.
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However, the available research can tell us a lot. Many organizations and researchers of
corruption have called for greater transparency in the government, which is hard to achieve.
Although, we know that the education level of the population aids in thwarting corruption,
meaning if there were more policies geared towards getting people educated it could reduce the
level of corruption. Maria Cristina Pinotti has done some excellent research displaying the costs
of corruption and how it affects our lives and what it could change. Thepriceofcorruptioncosts
BrazilbetweenR$41.5andR$69.1billionperyear.AccordingtothereportCorruption:
EconomicCostsandCombatProposals,thecostofcorruptionrepresentsbetween1.38%and
2.3%oftheGrossDomesticProduct(GDP).Ifinvestedineducation,forexample,thiscould
increasethenumberofstudentsenrolledinthepublicelementaryschoolnetworkfrom34.5
millionto51million,inadditiontoimprovingthelivingconditionsoftheBrazilian."The
extremelyhighcostofcorruptioninBrazilimpairstheincreaseinpercapitaincome,growth
andcompetitivenessofthecountry,compromisesthepossibilityofofferingbettereconomic
conditionsandsocialwelfaretothepopulation,andtocompany’sbetterinfrastructure
conditionsandAmorestablebusinessenvironment,(Cristina,2011)."Thereportalsopoints
outthatifthemoneygapinthecountrywerelower,thenumberofhospitalbedsinpublic
hospitalscouldrisefrom367,397to694,409.Thedeviantmoneycouldalsohousemorethan
2.9millionhouseholdsandbringbasicsanitationtomorethan23.3millionhouseholds.Andall
this,withoutadoubt,influencesthecompetitivenessofthecountry.
ThisshowsaclearinfluencecorruptionhasovertheeconomicwellbeingofBrazil.While
it’shardtomeasuretheeffectsoffaddingpublichospitalsorfundingforeducation,allprevious
researchpointstoariseinthelevelofeducationdecreasingthelevelsofcorruption.
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Additionally,anincreaseineducationwouldincreasetheskillofthelaborforce,givingthem
theopportunitywithmorewellskilledjobsandincreasesthechancesofinternational
companiescomingtoBraziltohirethenewskilledworkforce.Thiscouldboosttheproductivity
ofBrazilasitwouldencourageFDIandincreasethelevelofeducationofthecountry.
Nowthattherehasbeenarelationshipdeterminedbetweenthelevelofcorruptionand
productivitythenextstepsshouldbedetermininghowtoboostproductivity/growthofBrazil,
whiledecreasingthelevelofcorruption.Thisisnoeasytask.Futureresearchshouldfurther
investigatethebehaviorofcorruptindividualswithrelationtogametheory.Iffutureresearch
candeterminetheexactpointatwhichthebehavioroftheindividualorpartychangesfrom
believingthecorruptactisworththeextrarisktobelievingthatit’sbettertostayawayfrom
corruptionthiswouldgreatlyenhancethefightagainstcorruption.Thisresearchcanbestarted
bylookingathowmuchextracompensationisneededforanindividualtoconsiderperforming
acorruptact.Thisresearchshouldnotonlylookatmonetaryincentivesbutalsothepsychology
behindanindividualchoosingtobecorrupt.Aretheydoingitbecausetheyhavenofearof
beingcaught?Orforthemonetaryincentive?Ifyoucanfindthemotivatorsanddetractorsfor
individualsperformingcorruptactsthere’sagreaterchanceatloweringlevelsofcorruption.
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América Latina.
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DZHUMASHEV, R. (2013). THE TWO-WAY RELATIONSHIP BETWEEN GOVERNMENT
SPENDING AND CORRUPTION AND ITS EFFECTS ON ECONOMIC GROWTH. Contemporary
Economic Policy, 32(2), 403-419.
Gokcekus,Omer,andYuiSuzuki."IsThereaCorruption-EffectonConspicuousConsumption?"SSRN
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