This site contains my MSc Economics extended essay on corruption.
The full essay is available in
html
and
pdf. Feel free to contact me at erlend&berg2001&_@_yahoo.co.uk (remove underscores and ampersands). A brief summary of the essay follows.
There are strong indications that corruption has a significant negative impact on economic performance. However, corruption indicators have often been based on either polls of the type "How corrupt is you country, 1-10?" or on the opinions of country or regional "experts". These corruption measures have weaknesses, including "headline" bias, lagging and difficulty of comparison across regions and over time.
I propose that corruption indicators should instead be based on polls measuring the subjective experience of respondents. Also, they should be measured in precise units. As an example of such an quantity, I propose the bribe ratio, the ratio of the value of bribes paid to total income.
Finally, in a small empirical section I run a regression using recent data from transition economies. The results, although weak, seem to support the notion that choice of corruption measure makes a difference. A previous study (Mauro 1995) found a stronger impact of corruption perceptions on investment than on growth. I conjecture that this may be because perceived corruption level is a poor indicator of true corruption. Investments, however, are likely to be based on perception. It is possible that Mauro would have found stronger links between corruption and growth if he had used an experience-based measure.