Corruption in South Asia is omnipresent. A report titled ‘India Corruption Survey 2018’, compiled by Transparency International in collaboration with Local Circles, stated that 56% of the citizens paid bribe in the last one year.1 Similarly, the Central Bureau of Investigation (CBI) of India stated that 314 cases of corruption were registered between January and June of 2018 in the country.2 In Pakistan, a top political leader and three times Prime Minister, Nawaz Sharif was removed from the post in 2017 by Pakistan’s supreme court over allegations of corruption. In December 2018, he was sentenced to seven years in prison over corruption charges.3
At the homefront, the Commission for the Investigation of Abuse of Authority (CIAA), an apex constitutional body formulated to fight corruption in Nepal, released in a report for the fiscal year 2074/75, that out of 194 cases registered with the institution, 50% were cases of bribery.4 Such cases related to corruption are something that continue to be heard almost on a regular basis.
Although this article primarily discusses corruption in the context of South Asian economies, a slight reference of Asian economic giants such as China and South Korea is also made. South Asia comprises of eight sovereign states which are India, Afghanistan, Pakistan, Sri Lanka, Nepal, Bhutan, Maldives and Bangladesh. As per the Transparency International Report (2018), which ranked 180 countries and territories by their perceived levels of public sector corruption, five out of eight South Asian countries ranked well over 100 at the Corruption Perceptions Index. The worst was Afghanistan among the South Asian countries ranking 172nd out of 180 countries, while Bhutan was the least corrupt in the South Asian region ranking 25th.5
Persistent number of corruption cases continue to surface from all levels and various public and private sectors in majority of the South Asian countries. The table below portrays status of corruption in the region in the last five years. None of the countries present a sign of sustainable improvement. All of these countries are underdeveloped or developing economies.
To understand how corruption could be a double edged sword, the following sections discuss ways in which corruption can impact a nation. It is presented on the basis of arguments that is against and for corruption.
Arguments against corruption
Negative impact on economic growth and investments: Corruption in South Asian countries shows no signs of deceleration. The presence of deep and institutionalized corruption is said to make economic growth difficult. In Pakistan, a study confirmed that corruption had negative impact on economic growth from 1985-2010. The study showed that 1% increase in corruption decreased the economic growth in Pakistan by 0.36% in that given period.6
Corruption also tends to harm economic activity as it is considered to be a strong deterrent of foreign investment, adversely impacting economic growth and national wealth. Furthermore, corruption tends to deteriorate the efficiency of aid and also impede political support for it.The Transparency International report (2016) stated that out of USD 8 billion aid to the country, as much as USD 1 billion was lost due to corruption.7 In addition, it tends to lower foreign and domestic investments, weaken trust in the government and undermine the effectiveness of public policy. For instance, if corruption in India is reduced to the level of Scandinavian countries, investment would rise annually by 12% and GDP would grow at an additional rate of 1.5%.10
Obstruction for economic reforms: A country’s ability for economic reforms and growth is believed to be obstructed due to activities such as rent seeking, which has a probability of hindering free and fair market economy preventing greater transparency, reliability and stability. Corruption also causes imbalance in income and wealth distribution resulting in poverty and inequality. Due to corruption in Pakistan, the economic growth was not only negatively affected, but also led to imbalances in the society, causing lack of demand in the market, opportunities of labour and misbehaviour of customers.8
Increase in inequality: Corruption is also believed to broaden the gap between the rich and poor, thus promulgating inequality. It tends to impact the poor more as the same amount of money in the form of bribe will extract a larger share of their income in comparison to somebody with higher income.They all point to the fact that corruption leads to an imbalanced economic growth.
Fiscal deficit: Corruption reduces public revenue and increases public expenditures resulting in fiscal deficit.11 As per one estimate, if corruption was not present in India the public sector enterprises would have improved its profit margin by nearly 20%12 thus, lowering the fiscal deficit.
In Nepal, corruption has had a crippling effect on the public sector and among public servants and citizens. A study reported that revenue leakage due to corruption in essential public service sectors in Nepal such as the Nepal Water Supply Corporation and Nepal Electricity Authority resulted in the shortage of coverage of water and electricity, especially in poor neighbourhoods.13
Increase in cost of doing business: Additionally, it is argued that corruption reduces productivity and growth due to its tendency to increase the cost of doing business which result in decreased efficiency of investment. Bangladesh’s case is not any different. Corruption and malpractice coupled with poor management of state owned commercial banks were the leading cause of high levels of non performing loans (NPLs) in Bangladesh. NPLs reached over Tk 800 billion (4% of GDP) by the end of September 2017 from Tk 657.31 billion (3.8% of GDP) in the previous year.14 Additionally, a study showed that an increase in corruption by 1% between the period of 1984-2008 resulted in a 10% reduction of GDP per capita.15
Corruption in South Asian economies has been prevalent and entrenched deeply in private, public and government sectors. It has resulted in a larger concern for poor governance which is responsible for poor economic performance, persistent poverty, the subversion of democracy and the inability to attract sufficient foreign investment.16
Although the above arguments against corruption is valid and its detrimental impacts are substantiated, it is imperative to review the opposite side of the spectrum, that is the argument for corruption. It is to be noted that arguments for corruption made below is not intended to encourage or endorse corruption in any manner whatsoever.
Arguments for Corruption
There have been many studies indicating constructive views on corruption and its effect on the economy. For instance, corruption is considered efficient as it removes government imposed barriers, which hinders investment and interfere with various economic decisions leading to economic growth.17 18 An empirical study done to analyse the impact of corruption on economic growth showed that in countries with good institutional quality, the economic growth is negative whilst in countries with poor institutional quality, the effect of corruption is positive or at the least less negative.19 Such arguments have been made to justify the cases of rapid economic growth of some South East Asian economies, which were riddled with high levels of corruption. This is evident when we look at high economic growth rate of countries such as South Korea in the 1960s and China in early 2000s; they suffered high corruption rate, but at the same time, high economic growth as well.
Grease the wheels: This claim could be backed by an empirical study which showed that there is actually an explicitly positive causality from corruption to economic growth in South Korea. This meant that the hypothesis ‘grease the wheels’ (an idiom which means to facilitate something or some process to run smoothly) is supported in the case of South Korea. Similarly, the study also found out that there is significantly positive causality from the economic growth to corruption in China. This would imply that in China, an increase in economic growth leads to increase in corruption. The empirical study was to investigate whether corruption negatively impacted economic growth in Asia-Pacific countries (including South Korea and China) over the period of 1997-2013.20 The evidence hints that analysing and studying the aggregate evidence of corruption could be misrepresented as rapidly growing economies experience high levels of corruption in their nascent stages.
Further support to the hypothesis ‘grease the wheels’ could be found in the case of Bangladesh. A positive association between corruption and growth in Bangladesh was found after the economy embarked on privatization by unleashing private investment. The study highlighted that both corruption and economic growth increased with the pace of privatization and the market economy in Bangladesh. Although economic growth and corruption both grew, Bangladesh was not able to bring reforms in bureaucracy in major public utilities leading to weak system sustaining corruption. 21 This claim could be backed by a study which found that countries where there are weak legal frameworks, corruption raises economic growth.22
Increased efficiency: Another common argument that has been articulated in support of corruption is that it acts as a time saver and increases efficiency. Corruption is said to work as a speed money.23 Particularly, it is efficient when various red tapes and bureaucratic hurdles need to be tackled. For those who value time as an utmost priority, if offering bribes to officials will save time by jumping in front of the line and get decisions quickly, then corruption could be the catalyst.24 At the end, it depends upon how valuable time is for an individual and the amount of money they can dispose as bribe to save time. For instance, Transparency International reported that in many South Asian countries, bribes are paid most of the times to quicken economic and bureaucratic transactions.25
In terms of Foreign Direct Investment (FDI), a study concluded that in countries such as India, corruption, over the years did not reduce the inward FDI, but suggested that if the levels of corruption can be reduced, then the country can attract more inward FDI.26
To conclude, it is a commonly held belief that corruption hinders economic growth and adversely affects the nation and its citizens. Although this statement is true, the analogy may not be as simple and straightforward as it ought to be, especially in case of South Asian and South East Asian economies. Whether corruption affects economic growth negatively or positively seems to depend greatly on the country and the regional context.27
1 “India Corruption Survey 2018”. Local Circles and Transparency International India. 2018. http://www.transparencyindia.org/pdf/1539269445_India_Corruption_Survey_2018.pdf
2 “CBI Registered 314 Corruption Cases In 2018, Says Government”. NDTV. 18 July 2018. https://www.ndtv.com/india-news/cbi-registered-300-corruption-cases-in-2018-says-government-1885482
3 “Former Pakistani Prime Minister Nawaz Sharif Jailed for Seven Years on Corruption Charges”. South China Morning Post. 24 December, 2018.
4 “28th Annual Report. Fiscal Year 2074/75. Commission for the Investigation of Abuse of Authority (CIAA)”. http://ciaa.gov.np/images/publications/154839558428th_executive_summary_2075.pdf
5 “Corruption Perception Index 2018”. Transparency International. https://www.transparency.org/cpi2018
6 “The Relationship between Corruption and Economic Growth in Pakistan – Looking Beyond the Incumbent”. Amin, Maria; Ahmed, Adeel & Zaman, Khalid (2013). Oeconomics of Knowledge, Volume 5, Issue 3, Summer 2013.
7 “Transparency International. “Afghanistan Must Refocus Efforts to Fight against Corruption to Safeguard US$12 Billion in New Aid.” Transparency.org, 4 October 2016. https://www.transparency.org/news/pressrelease/afghanistan_must_refocus_efforts_to_fight_against_corruption_to_safeguard_u.
8 “Corruption, Inequality and Economic Growth. Developing Country Studies”. Ambar, Rabnawaz (2015). www.iiste.org ISSN 2224-607X (Paper) ISSN 2225-0565 (Online) Vol 5, No. 15, 2015
9 “Corruption and Poverty: A Review of Recent Literature”. Chetwynd, E., Chetwynd, F., & Spector, B. (2003). Management Systems International, pp. 1-22
10 “Effects of Corruption on FDI Inflow in Asian Economies”. Alemu, Aye Mengistu (2012). Seoul Journal of Economics 2012, Vol 25. No.4
11 “Can Corruption Adversely Affect Public Finances in Industrialized Countries?” Brookings. OPED, Daniel Kaufmann. https://www.brookings.edu/opinions/can-corruption-adversely-affect-public-finances-in-industrialized-countries/
12 “Corruption and its Impact in Indian Society: Causes and Remedies”. Jajo, Lunghar (2016). Imperial Journal Of Interdisciplinary Research (IJIR) Vol-2, Issue-12. ISSN: 2454-1362, http://www.onlinejournal.in
13 “Corruption in Infrastructure Provision and Service Delivery at the Municipal Level in Nepal”. Shrestha, Purusottam Man (2007). Water Engineering and Development Centre. Loughborough University.
14 “Bangladesh Development Update. Building on resilience” The World Bank Group. April 2018. http://documents.worldbank.org/curated/en/135671531755711230/pdf/Bangladesh-Development-Update-2018.pdf
15 “The Impact of Corruption on Economic Development of Bangladesh: Evidence on the Basis of an Extended Solow Model”. Pulok, Mohammad. (2012). Stockholm University. Munich Personal RePEc Archive, MPRA Paper No. 28755. https://core.ac.uk/download/pdf/12027179.pdf
16 “Corruption and Governance in South Asia”. Khan, H, Mushtaq (2006): General Survey.Europa publications.
17 “Economic Development through Bureaucratic Corruption”, Leff, N. (1964). American Behavioural Scientist, Vol. 8, pp. 8-14
18 “Political Order in Changing Societies”. Huntington, S. P. (1968), New Haven: Yale University Press.
19 “Policy compromises: corruption and regulation in a democracy”. Aidt, T. S. & Dutta, J. (2008). Economics and Politics, 20 (3), pp. 335–60.
20 “Is Corruption Bad for Economic Growth? Evidence from Asia-Pacific countries.” Ju Huang, Chiung (2016): The North American Journal of Economics and Finance. Volume 35, 2016, Pages 247-256, ISSN 1062-9408, https://doi.org/10.1016/j.najef.2015.10.013.
21 “Does corruption foster growth in Bangladesh?” Paul, B. P. (2010). International Journal of Development Issues, Vol. 9, pp. 246 – 262.
22 “Can Corruption Ever Improve an Economy?”. Houston, D. (2007). Cato Journal, Vol. 27 (3), pp. 325- 342.
23” Corruption in public projects and megaprojects: There is an elephant in the room!,”. Giorgio Locatelli, Giacomo Mariani, Tristano Sainati, Marco Greco (2017). International Journal of Project Management, Volume 35, Issue 3, 2017, Pages 252-268, ISSN 0263-7863, https://doi.org/10.1016/j.ijproman.2016.09.010.
24 “Corruption Around the World: Causes, Consequences, Scope, and Cures”. Tanzi, Vito (1998). IMF Working Paper. 1998 International Monetary Fund.
25 “Corruption Plagues Daily Life. Transparency International Secretariat (2012). South Asia. Retrieved from: http://www.transparency.org/news/pressrelease/20120116_south_asia
26 “Effects of Corruption on FDI Inflow in Asian Economies”. Alemu, Aye Mengistu (2012). Seoul Journal of Economics 2012, Vol 25. No.4
27 “The Linkage between Corruption and Shadow Economy Size: Does Geography Matter?”, Virta, H. (2010), International Journal of Development Issues, Vol. 9, pp. 4 – 24.