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The Economic Costs of Corruption: A Survey and New Evidence

Axel Dreher
University of Goettingen (Gottingen); ETH Zurich - KOF Swiss Economic Institute; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)

Thomas Herzfeld
Agricultural Economics and Rural Policy Group; University of Kiel - Institute of Agricultural Economics

June 2005

Abstract:
This paper reviews the empirical literature on the economic costs of corruption. Corruption affects economic growth, the level of GDP per capita, investment activity, international trade and price stability negatively. Additionally, it biases the composition of government expenditures. The second part of the paper estimates the effect of corruption on economic growth and GDP per capita as well as on six possible transmission channels. The results of this analysis allows to calculate the total effect of corruption: An increase of corruption by about one index point reduces GDP growth by 0.13 percentage points and GDP per capita by 425 US$.

Keywords: Costs of corruption, survey, empirical evidence

JEL Classifications: O1, K49, C39

Working Paper Series

Date posted: June 02, 2005 ; Last revised: March 01, 2006

Suggested Citation

Dreher, Axel and Herzfeld, Thomas, The Economic Costs of Corruption: A Survey and New Evidence (June 2005). Available at SSRN: http://ssrn.com/abstract=734184

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Contact Information

Axel Dreher (Contact Author) University of Goettingen (Gottingen) ( email ) Platz der Goettinger Sieben 3 D-37073 Goettingen Germany
ETH Zurich - KOF Swiss Economic Institute ( email ) CH-8092 Zurich Switzerland
CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Poschinger Str. 5 DE-81679 Munich Germany
Institute for the Study of Labor (IZA) P.O. Box 7240 D-53072 Bonn Germany
Thomas Herzfeld Agricultural Economics and Rural Policy Group ( email ) De Leeuwenborch Hollandseweg 1 6706 KN Wageningen Netherlands
University of Kiel - Institute of Agricultural Economics ( email ) Kiel Germany