The Economic Costs of Corruption: A Survey and New Evidence

33 Pages Posted: 2 Jun 2005

See all articles by Axel Dreher

Axel Dreher

Heidelberg University

Thomas Herzfeld

IAMO; Martin Luther University of Halle-Wittenberg

Date Written: June 2005


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 Classification: O1, K49, C39

Suggested Citation

Dreher, Axel and Herzfeld, Thomas, The Economic Costs of Corruption: A Survey and New Evidence (June 2005). Available at SSRN: or

Axel Dreher (Contact Author)

Heidelberg University ( email )

Grabengasse 1
Heidelberg, 69117


Thomas Herzfeld

IAMO ( email )

Theodor-Lieser-Str. 2
Halle/Saale, 06120

Martin Luther University of Halle-Wittenberg ( email )

Universitätsplatz 10
Halle (Saale), Saxony-Anhalt 06108

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