Corruption varies widely across countries. Despite measurement problems, all evidences converge to substantiate a positive correlation between poverty and corruption. This is for instance illustrated by the corruption perception index edited by Transparency International (TI), and also by other indices such as the one published by Business International. The difference in level of corruption among poor and rich economies tends to suggest that corruption is the cause of poverty. In fact there is little debate among economists that corruption impedes growth in the long run. Yet, if corruption causes poverty, what causes corruption? Moreover the fact that corruption increases poverty does not explain the difference in nature of corruption across countries. Corruption in OECD countries typically involves large amount of money and high profile actors (top rank civil servants, politicians, CEOs). Such corruption is usually referred to as grand corruption and corresponds to capture. In developing countries, grand corruption also exists, but more strikingly there is a widespread form of retail corruption which involves small sum of money and street level bureaucrats and corresponds to extortion. The TI Global Corruption Barometer 2006 shows that the perception of grand corruption is global. For instance the political life is seen everywhere in the world as the area being most compromised by corruption (i.e., by capture). By contrast, the percentage of respondents who claim that corruption (i.e., extortion) affects their personal or family life varies greatly among world's regions. For instance they are only 22 percent of Europeans to feel personally affected to a great extent, while they are at least 70 percent in Africa, in Bolivia, in Philippines, in South Korea and in Turkey. We aim to jointly explain the difference in nature and in level of corruption across rich and poor economies. Indeed understanding the complex relationship between corruption and poverty is crucial to design efficient strategies to fight both of them.

Bibliographic Elements

Measurement: Corruption is hard to measure. Indexes of corruption are generally based on perceived levels of corruption, as determined by expert assessments and opinion surveys. Transparency International provides such indexes for 180 countries.

• See http://www.transparency.org/policy_research/surveys_indices/cpi/2007

Correlation: There is a strong negative correlation between corruption indexes and GDP/capita.

1. Treisman (2000) shows that countries with Protestant traditions, histories of British rule, long exposure to democracy and more developed economies are less "corrupt". Federal states are more "corrupt".
   • See http://www.sscnet.ucla.edu/polisci/faculty/treisman/causes.pdf
2. Auriol and Gary-Bobo (2008) study the optimal number of representatives in democracy. They show that that the excess number of representatives has an impact on the degree of state interference and on an index of barriers to entry of new firms (i.e., red tape). The number of representatives itself has a significant, positive impact on the degree of perceived corruption.
   • See http://idei.fr/doc/wp/2007/optimal_number.pdf

Causality: Yet correlation is not causality. The link between corruption and development is complex. Causality goes both ways.

1. Corruption leads to poverty (i.e., is bad for growth).
   • “Corruption and Growth” Paolo Mauro, The Quarterly Journal of Economics, Vol. 110, No. 3 (Aug., 1995), pp. 681-712
   • “Public Procurement and Rent Seeking in Paraguay”, Auriol, Flochel and Straub (2008).
2. Auriol (2008) shows that poverty leads to corruption (i.e. extortion). Indeed corruption can be of two types: capture and extortion. Capture occurs both in rich and in poor countries. Extortion occurs mainly in poor countries. Some areas, such as public purchases, are more prone to corruption than other.
   • See http://idei.fr/doc/by/auriol/corruption.pdf (published in IJIO 2006)

Cure: Fighting extortion is easy. Fighting capture is hard (transparent procedure, information)

1. Fighting extortion requires paying incentive wages to civil servants (Auriol 2006, 08).
2. Fighting capture is hard because it generally benefits the ruling elite
   • http://idei.fr/doc/wp/2008/capture.pdf (forthcoming Utilities Policy).
   • http://www.comminit.com/en/node/69950