How does corruption hurt growth? Evidences about the effects of corruption on factors productivity and per capita income
This article aims to analyze and measure the influence of corruption on a country's wealth. It is implicitly admitted that the degree of institutional development has an adverse effect on the productivity of production factors, which implies reduced per capita income. It is assumed that the level of wealth and economic growth depends on domestic savings, foster technological progress and a proper educational system. Corruption, within this framework, is not unlike an additional cost, which stifles the "effectiveness" of the investment. This article first discusses the key theories evaluating corruption's economic consequences. Later, it analyzes the relation between institutional development, factor productivity and per capita income, based on the neo-classical approach to economic growth. Finally, it brings some empirical evidence regarding the effects of corruption on factor productivity, in a sample of 81 countries studies in 1998. The chief conclusion is that corruption negatively affects the wealth of a nation by reducing capital productivity, or its effectiveness.