DontHasseltheBeck
04-13-2008, 04:35 PM
We need a good economic debate, so I am going to build my case for the some of the literature out ther on the relationship between corruption and economic growth by assimilating the impact of economic freedom. I am going to use an econometric model with (a) grounds for the fact that economic growth, corruption, and investment are collectively determined, and (b) using economic freedom clearly as an explanatory variable. Using a sample size of 60 countries, researchers have found that for countries with lesser economic freedom (meaning individuals having restricted economic choices), corruption reduces economic growth. On the contrary, countries with higher economic freedom have an increased economic growth by corruption. These results contradict the popular belief that corruption stunts the growth of an economy. These results are explained by David Osterfeld's (author of How Government Stifles Economic Growth) contrast between "expansive" and "restrictive" corruption. According to Osterfeld, corruption amplifies output if bribes help the economy more toward greater free exchange. Thus, in economies where economic freedom is high, if bribing causes public officials to be less active in enforcing restrictions on firms' activities, output will rise. However, corruption will confine output when bribes decrease competition and increase market rigidities. This situation is more likely in countries where economic freedom is low due to extensive state ownership of assets, monopolies and high tariff barriers allowed to businesses owned by ruling elites and their associates, and state-run marketing boards that are often the exclusive purchasers of agricultural products. A rise in corruption in these deficient economic freedom countries means even less competition and free exchange and leads to a fall in product. The policy implication of the results is straightforward: the surest way to abate corruption and its detrimental effects is to increase economic freedom.
I yield the floor until I can draw up some of my nifty equations and graphs.
I yield the floor until I can draw up some of my nifty equations and graphs.