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CORRUPTION
Transition Economies
Presented By AJ Cericola
Definition of Corruption
Misuse of Power for private gain
Bribery
Extortion
Manipulation of Laws
It’s all about growth…
Corruption Type 1:
Corruption Type 2:Administration Corruption
Intentional imposition of distortions in the prescribed implementation of existing laws
Corruption Across the Globe
Corruption and Growth
Corruption and Development
Sectors of Corruption: Enterprise Growth
SME’s are most important for jobs, innovation, and growth
1. Labor force and new jobs 2. Less capital intensive – more labor 3. Product innovative, not process innovative 4. More financially constrained; represent 94% of business finance 5. Contribute to growth in recession more than larger firms
Bribes Paid
Sectors of Corruption: Investment
Much economic theory assume positive relationship between investment and growth
4 areas Corruption affects investment: 1. Total investments 2. Size and composition of FDI 3. Size of public investment 4. Quality of decisions and projects
Sectors of Corruption: Investment
Studies show that improvements in the corruption index (i.e. reduction in corruption) can increase investment GDP ratio
Comparison:
1% increase in MTR on FDI = reduction of incoming FDI ~ 3.3%
1pt. increase on corruption index = reduction in the flow of FDI ~ 11%
Anti-Corruption: What can be done?
Case Study: Poland
1956: Khrushchev denounces StalinWorker’s strike in Poznan starts market socialism and limited civil liberties1980: emergence of Solidarity
1989: parliamentary political system with proportional representationStrong public administration skills
Case Study: Croatia & Slovak Republic
Advanced among Central & Eastern
European countries
Nationalism
Concentration of political power
1994: worst year of corruption for Slovak Republic and Croatia
Croatia
Croatia: FDI vs. Real GDP per captia
01
23
45
FDI inflows($US billions)
Real GDP percapita ($USthousands)
Slovak Republic
0
1
2
3
4
FDI inflow s ($USbillions)
Real GDP percapita ($USthousands)
Case Study: Latvia
State Capture is high
Economy is highly concentrated: political parties run close with economic interests
1995: adoption of conflict of interest laws
1997: Corruption Prevention Council
LatviaLatvia: FDI vs. Real GDP
00.5
11.5
22.5
33.5
44.5
Real GDP per capita($US thousands)
FDI inflows ($USbillions)
Transparency: CPI Index
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
CPI Index
1998 2000 2002 2004
Croatia
Latvia
Poland
Slovak Republic
After thoughts…
Why does Poland have a decreasing CPI? Do they not have an anti-corruption strategy?
Can bad infrastructure cause corruption?
Your Questions…