The relationship between corruption, crime and economic growth seems obvious to most people. Both crime and corruption increase uncertainty and the cost of doing business, so crime and corruption must discourage entrepreneurial activities that cause growth. However, the relationship between crime and growth and corruption and growth is much more complex than it first appears. Scholars studying corruption have theorized both how corruption can reduce growth but also how it can increase growth, for example, by avoiding bureaucratic delays. The results of cross-country empirical literature on the effect of corruption on growth are mixed. Recently a new literature has emerged controlling for the quality of institutions to examine the effect of corruption on growth. In the next section of this chapter we review the existing literature on corruption and growth, highlight some of the shortcomings in the literature, and then report on some of the newer studies that examine the interaction of institutions, corruption and growth. We believe this final strand of literature provides the most accurate view of how corruption impacts growth.
Find the chapter online at Benjamin Powell's website.