Corruption and Income

Most clearly, poverty and bribery go together. But which causes which?

Mr Wolfowitz's crusade at the World Bank is based on the idea that corrupt countries fail to develop. But several countries in Asia have grown rapidly at a time when cronyism was common, including Indonesia and South Korea in their time. Today's most conspicuous example is China with its explosive growth. Polls consistently show that corruption is the top complaint of ordinary Chinese. From time to time the Chinese government executes particularly egregious offenders, to no apparent avail. And yet foreign investors cannot pile into the country fast enough. Although most economists agree that corruption slows development, a corrupt country is nevertheless capable of rapid growth. Countries may be corrupt because they are poor, and not the other way round.

That is an interesting question. I had thought that corruption caused poverty. But, China is a major counter example. Hopefully future research will look into which way the causation arrow points.

via The Economist