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The Challenge of Anti-Corruption
Conference on Corruption and Anti-Corruption: Threats, Challenges and Opportunities
Sussex Centre for the Study of Corruption, Transparency International
Clifford Chance, London 9th September 2014.
Mushtaq H. Khan, SOAS,
UNIVERSITY OF London
Corruption in Developing Countries
• Corruption appears to be endemic across developing countries
• Anti-corruption efforts do not appear to have lasting effects
• The relationship between corruption and economic performance at the aggregate level appears to be relatively weak
• One interpretation is that corruption is very difficult to fight and the gains are uncertain.
• An alternative interpretation is that we have ignored differences in types of corruption and our instruments do not identify or target the most damaging types of corruption
• This is true for much of the ‘good governance’ reform policies that target property right stability, the rule of law, political accountability, AND anti-corruption 2
Cross-Country Evidence
3
Composite Good Governance Indicators and Per Capita GDP1990/2000
10
100
1000
10000
100000
0 10 20 30 40 50
Average of World Bank Good Governance Indicatorsin 1990 (ranges from 0 to 50)
Lo
gs
of
per
cap
ita
GD
P in
US
$ 20
00
Cross-Country Evidence
4
Composite Good Governance Indicators and Growth Rates1990-2003
-8
-6
-4
-2
0
2
4
6
8
10
0 10 20 30 40 50Average of World Bank Good Governance indicators
in 1990 (ranges from 0 to 50)
Gro
wth
Ra
te o
f P
er
Ca
pit
a G
DP
19
90
-20
03
Diverging Developing Countries
Cross-Country Evidence
5
Composite Good Governance Indicators and Growth Rates1990-2003
-8
-6
-4
-2
0
2
4
6
8
10
0 10 20 30 40 50Average of World Bank Good Governance indicators
in 1990 (ranges from 0 to 50)
Gro
wth
Ra
te o
f P
er
Ca
pit
a G
DP
19
90
-20
03
Advanced Countries Diverging Developing Countries
Cross-Country Evidence
6
Composite Good Governance Indicators and Growth Rates1990-2003
-8
-6
-4
-2
0
2
4
6
8
10
0 10 20 30 40 50Average of World Bank Good Governance Indicators
in 1990 (ranges from 0 to 50)
Gro
wth
Rat
e o
f P
er C
apit
a G
DP
199
0-20
03
Advanced Countries Converging Developing Countries Diverging Developing Countries
Corruption and Growth
7
-1 0 1 2 3 4 5 6 7-8
-6
-4
-2
0
2
4
Corruption and Growth 1990-2003(using Knack's IRIS data)
Advanced Countries Converging Developing Countries Other Developing Countries
IRIS Corruption Index 1990(ranges from 0 to 6)
Gro
wth
Ra
te o
f P
er
Ca
pit
a G
DP
19
90
-20
03
Growth-Enhancing Governance versus Good Governance
3. Advanced Capitalist Countries
1. Diverging Developing Countries
Gro
wth
Ra
tes
Good Governance Score(Democracy, Corruption,
Stability of Property Rights)
2. Converging Developing Countries
Regression Line
Reforms suggestedby Good Governance
Regression Line
Targeted Anti-Corruption and Governance Capabilities trigger and sustain growth
Four types of Corruption
9
Corruption is always associated with state functions where a public official is engaged in illegal activities: But the state functions themselves may be legal and/or necessary functions, or not
Anti-corruption strategy that does not distinguish between different types of corruption to target the most important and feasible types is likely to fail
Feasibility versus Impact of Anti-Corruption Strategies
10
State-constraining corruption is likely to be an important focus for effective and feasible anti-corruption activities in developing countries
An Example of the Policy Design Problem from Bangladesh: Regulatory Failure in the Bangladeshi Garments Industry
(Drawn from a cross-country study on The Impact of Corruption on Private Sector Growth conducted for DFID 2014)
Another Example of State-Constraining Corruption: Customs Corruption in the Bangladeshi Garments Industry
(Drawn from a cross-country study on The Impact of Corruption on Private Sector Growth conducted for DFID 2014)
A Process-Analysis Approach to Anti-Corruption
• The targeting of state-constraining corruption is critically important in developing countries
• Corruption is in general ‘over-determined’: multiple processes are involved with firms engaging in corruption for different reasons
• In the worst cases, almost all firms are engaged in corruption, and in these cases, everyone pays lip service to anti-corruption but standard anti-corruption strategies have no chance
• Effective strategies require careful ‘process analysis’ to separate the determinants of corruption for potentially compliant and potentially non-compliant firms
• Necessary state functions have to be redesigned to remain developmental and ensure that it becomes feasible for the potentially compliant to become compliant and even to benefit from compliance
• Regulatory and enforcement capacities are likely to need strengthening but since resources are limited, policy has to incrementally target critical agencies to achieve specific objectives13
