In contrast, a high perception of corruption is reported in almost all countries with emerging economies. Corruption in the way deals are made, contracts are awarded, or economic operations are carried out, leads to monopolies or oligopolies in the economy. Those business owners who can use their connections or money to bribe government officials can manipulate policies and market mechanisms to ensure they are the sole provider of goods or services in the market.
Monopolists , because they do not have to compete against alternative providers, tend to keep their prices high and are not compelled to improve the quality of goods or services they provide by market forces that would have been in operation if they had significant competition.
Embedded in those high prices are also the illegal costs of the corrupt transactions that were necessary to create such a monopoly.
If, for example, a home construction company had to pay bribes to officials to be granted licenses for operations, these costs incurred will, of course, be reflected in artificially high housing prices. In best practice, companies choose their suppliers via tender processes requests for tender or requests for proposal , which serve as mechanisms to enable the selection of suppliers offering the best combination of price and quality.
This ensures the efficient allocation of resources. In corrupted economies, the companies that otherwise would not be qualified to win the tenders are often awarded projects as a result of unfair or illegal tenders e. This results in excessive expenditure in the execution of projects and substandard or failed projects, leading to overall inefficiency in the use of resources.
Public procurement is perhaps most vulnerable to fraud and corruption due to the large size of financial flows involved.
Corrupted economies are characterized by a disproportionately small middle class and significant divergence between the living standards of the upper class and lower class. Because most of the country's capital is aggregated in the hands of oligarchs or persons who back corrupted public officials, most of the created wealth also flows to these individuals.
In a corrupt economy, small businesses are not widely spread and are usually discouraged because they face unfair competition and illegal pressures by large companies that are connected with government officials. Certain industries are more prone to corruption than others, making small businesses in these sectors even more vulnerable to unethical business practices.
Because little confidence can be placed in the legal system of corrupted economies in which legal judgments can be rigged, potential innovators cannot be certain their invention will be protected by patents and not copied by those who know they can get away with it by bribing the authorities.
There is thus a disincentive for innovation, and as a result, emerging countries are usually the importers of technology because such technology is not created within their own societies. Small businesses in corrupt countries tend to avoid having their businesses officially registered with tax authorities to avoid taxation.
As a result, the income generated by many businesses exists outside the official economy, and thus are not subject to state taxation or included in the calculation of the country's GDP. Another negative of shadow businesses is they usually pay their employees decreased wages, lower than the minimum amount designated by the government.
Also, they do not provide acceptable working conditions, including appropriate health insurance benefits for employees. Corruption is one of the disincentives for foreign investment. Investors who seek a fair, competitive business environment will avoid investing in countries where there is a high level of corruption. While investing in emerging markets remains a popular investment area, investors are naturally hesitant to put their money at risk in countries known to have high corruption levels.
Studies show a direct link between the level of corruption in a country and measurements of the competitiveness of its business environment.
A working paper of the International Monetary Fund IMF shows corruption has an adverse impact on the quality of education and healthcare provided in countries with emerging economies. Corruption increases the cost of education in countries where bribery and connections play an important role in the recruitment and promotion of teachers. As a result, the quality of education decreases and this affects the overall health of the economy.
Also, corruption in the designation of healthcare providers and recruitment of personnel, as well as the procurement of medical supplies and equipment, in emerging economies results in inadequate healthcare treatment and a substandard or restricted, medical supply, lowering the overall quality of healthcare. Many countries with emerging economies suffer from a high level of corruption that slows their overall development. The entire society is affected as a result of the inefficient allocation of resources, the presence of a shadow economy, and low-quality education and healthcare.
Corruption thus makes these societies worse off and lowers the living standards of most of their populations. Such efficiency is determined by the quality of the regulations and permits, since ineffective and unclear regulations help to increase the level of corruption in at least two different ways:. The artificially created monopoly of power that enables civil servants to obtain bribes is based on their superior position and embedded in the system.
On the other hand, however, ineffective and unclear regulations cause inhibition and therefore encourage natural persons to pay bribes in order to speed up the bureaucratic procedure. Corruption is also strongly influenced by the low salaries of public administration employees state officials , who are therefore trying to improve their financial position by receiving bribes, and consequently, the socio-economic situation of the government officials also affects the phenomenon of corruption.
This is demonstrated also by Allen et al. The mentioned authors find that the private sector has higher ethical values, in particular those that affect satisfaction with work, than the public sector and is therefore less unethical especially regarding thefts and corruption.
Indirectly, Svenson [ 10 ] also affirms this and states that in principle, the salary level of civil servants affects the receipt of a bribe the higher it is, the smaller the chance that the person will act corruptly. However, he continues on that a higher salary also strengthens the negotiating power of the official, which leads to higher bribes and he also states that, on the basis of existing research, it is very difficult to determine whether a higher salary causes less corruption, which means that the level of salary is not a decisive factor, but merely one of many.
The economy is unfortunately largely dependent on politics and often reflects the rule of law; various options for eliminating competition are exploited, and bribery is just one of the possible weapons in the struggle to gain a job. They are part of the game and everyone does it. The political influence of corruption is also manifested through the proverb: examples are attractive!
If the top of the politics government, parties and leading politicians is corrupt, then corruption shows at all levels, and this evil at the same time spreads among the ordinary population, as nobody trusts the institutions or the rule of law. Johnston [ 15 ] thus points out useful thinking in terms of two types of equilibrium—the balance between the openness and the autonomy of the institutions and elites it leads and the balance between political and economic power and opportunities for cooperation.
Ideally, the institutions should be open to influences and feedback from different sources, yet at the same time sufficiently independent to effectively carry out their work. Where the openness and independence of the institutions are in balance, the officials are accessible, but not excessively exposed to private influences; if they can make authoritative decisions, while not using their power to arbitrate, the corruption is relatively low.
Lack of professional ethics and deficient laws regulating corruption as a criminal offense, and the prosecution and sanctioning of it are also an important cause for the emergence and spread of corruption. A great influence comes also from the ineffective sanctioning of corruption, which only increases the possibility of continuing the corruptive actions of those involved, creating at the same time a strong likelihood that others will join in the corruption due to this inefficient sanctioning.
The sole lack of professional ethics is a particular issue, as the administration requires different amounts of time to develop or change its ethics and professional standards, which is well known in transition countries in some, ethics and professional standards changed overnight and approached the equivalents in the developed democracies, and in some, they remained the same as in socialism.
Therefore, due to lack of professional ethics in some countries that otherwise manage illegal corruption well, there is nevertheless a widespread form of legal corruption. Corruption also generates a lack of transparency and a lack of control by supervisory institutions. Therefore, where there is insufficient legal basis or sufficient political will to control, which enables a non-transparent functioning of both politics and the economy, corruption flourishes.
Corruption is also affected by the extensive, non-transparent or incomplete legislation, where laws can be interpreted in different ways for the benefit of the one who pays. Different countries have different attitudes to corruption. In Europe alone, we can find two extremes; from completely corruption intolerant North to the warm South, where corruption is an almost normal, socially acceptable phenomenon.
Or the difference between countries with a democratic past, which traditionally prosecute corruption, and former socialist countries, where the corruption in the state apparatus was a part of folklore tradition. Everything is only a matter of ethics and morality; however, they can be very different in different areas and different countries. Some forms of corruption also relate to an informal form of social security, where the family or the immediate community takes care of its members.
Such forms of informal social security prevail in less developed countries, where there is no legal regulation of formal social security and in the countries of Southern Europe where the influence of the broader family patriarchate 5 is still very strong, like for example in Italy, Greece, Albania, Bosnia, etc. These countries are known for nepotism, cronyism and patronage, since the family as well as the wider community provide social security. The family or community takes care of their members, who, in return, must be loyal and in a way also repay the benefits they receive from it.
The same is true of faith. While the southern, predominantly Catholic, very hierarchically organized part of Europe, encourages the cult of the family also joint and several community and several liability, the northern, mainly Protestant part, emphasizes individualism and individual responsibility which means less forms of corruption. The corruption also prospers better in countries where Islam and Orthodoxy are the main religion. The influence of the dominant religion in the country is thus important.
The influence of majority Protestantism has been tested several times and has proven to be an important factor for the low level of corruption in a country. Today, there are many nominally Protestant countries that are de facto secular, while also many non-Protestant countries fight effectively against corruption. Thus, the influence of Protestantism appears to emerge from its egalitarian ethos, which could indirectly function as a support to the general orientation toward ethical universalism, literacy and the promotion of individualism.
Its role is therefore important, as it at certain stages of the development explains why the first countries that were well managed were predominantly Protestant. This does not mean that other religious traditions are incompatible with good governance, but only that they have not succeeded in compiling this particular array of factors at the right moment [ 16 ].
Similarly, the research by North et al. The results of their research have shown that there is a link between religion and corruption on one hand, and respect for the rule of law on the other, but not that the link is causative. The questions therefore arise: Why do some religions respect the rule of law more than others and control corruption? Do the characteristics of a particular religion themselves lead to the results?
Are there any differences in religious doctrines, practices or cultures that lead to such results? Are there other links that are not rooted in the religious culture, but are related to religious affiliation? A study titled Perception of corruption by authors Melgar et al. They found that those who think that there is a lot of corruption also perceive it so and are consequently more willing to pay for it as they think or expect the society to function that way.
By using a wide and very heterogeneous set of data and econometrics, it has been shown that the social status and personal characteristics also play an important role in the shaping of corruption perception at the micro level. While divorced women, unemployed persons, persons working in the private sector or the self-employed are considered to be in positive correlation with the perception of corruption corruption is perceived more and they are more willing to pay bribes , the opposite applies to married persons, full-time employees, people who frequently attend religious ceremonies and people with at least secondary education they perceive less corruption and are also unwilling to pay.
According to the classification of countries, they find that it can be proved that all African and Asian countries are in the upper half of the table, and the same applies to the former socialist countries and most of the East Asian countries. People living in these countries perceive more corruption than others.
On the contrary, most European countries and some of the former English colonies show lower perceptions than the average there are also exceptions and rank in the lower half, the same as half of the richest countries. They also added that the geographical classification of countries has been strongly correlated with the corruption perception index CPI , which shows that individual characteristics and social conditions are specific factors that influence the perception of corruption.
However, they have also found that better economic results reduce the perception of corruption, while the macroeconomic instability and income inequalities have precisely the opposite effect. A very important factor that affects corruption is also demographics.
A number of studies have shown that patriarchal society is more prone to corruption. This is confirmed by several researches that actually explore to what extent are men women corrupt.
Several earlier, especially econometric contributions to the debate on who is more corrupt, men or women, argued that there is a link between a higher representation of women in government and lower levels of corruption. An influential study of countries in Europe, Africa and Asia by the World Bank [ 20 ] confirmed this and concluded that women are more reliable and less prone to corruption.
The subsequent findings were later reinforced by further research. Rivas [ 21 ] also affirms this in his research and notes that, according to the results of the survey, the conclusion could be that women are less corrupt than men and that the increase in the number of women on the labor market and in politics would help fight corruption.
Lee and Guven [ 22 ] in the survey: Engaging in corruption—the influence of cultural values and the contagion effects at the micro-level also raised the question of whether men are more corrupt than women. The findings of the research support the thesis that women are less susceptible to corruption than men, especially in cultures that require men to be ambitious, competitive and materially successful, as these factors significantly contribute to unethical behavior.
This was surprisingly well shown also in practice [ 23 ] when, due to gender equality, the Peruvian government a decade ago decided to involve more women in the police units. When the 2, female police officers were joined as traffic police officers, something unexpected happened; bribery was drastically reduced, and people welcomed the female police officers on the streets. In , Tanzi and Davoodi [ 2 ] conducted a systematic study of the impact of corruption on public finances.
Several important findings came to light:. Corruption increases the volume of public investments at the expense of private investments , as there are many options that allow for public expenditure manipulation and are carried out by high-level officials so as to get bribes which means that more general government expenditures or a large budget offer more opportunities for corruption.
Corruption redirects the composition of public expenditure from the expenditure necessary for basic functioning and maintenance to expenditure on new equipment. Corruption tends to pull away the composition of public expenditure from the necessary fixed assets for health and education, as there is less chance of getting commissions than from other, perhaps unnecessary projects. Corruption reduces the effectiveness of public investments and the infrastructure of a country. Corruption can reduce tax revenues by compromising the ability of the state administration to collect taxes and fees, although the net effect depends on how the nominal tax and other regulatory burdens were selected by the officials, exposed to corruption.
The influence of corruption on the economy was studied by the same authors [ 3 ] through several factors:. Through the impact of corruption on businesses : The impact of corruption on a business is largely depend on the size of the company. Large companies are better protected in an environment that is prone to corruption, they avoid taxes more easily and their size protects them from petty corruption, while they are often also politically protected, which is why the survival of small especially start-up companies and middle-sized companies, regardless of their importance for the growth of the economy and the development, is much more difficult than the survival of large companies.
Through the impact of corruption on investments : Corruption affects a total investments, b the size and form of investments by foreign direct investors, c the size of public investments and d the quality of investment decisions and investment projects. Through the influence of corruption on the allocation of talents : Indirectly, corruption has a negative impact on economic growth through the allocation of talents, since gifted and prospective students are driven, due to the influence of the environment and the situation in the country, for example, to study law rather than engineering, which would add value to the country.
Through the impact of corruption on public spending : Corruption has a negative impact on public spending and has an especially strong impact on education and health. There are also indications of the correlation between corruption and military expenditure, which means that high level of corruption reduces economic growth due to high military expenditure. Through the impact of corruption on taxes : Because of corruption, less taxes are levied than would otherwise be, as some of the taxes end up in the pockets of corrupt tax officials.
Whereas some would differentiate between bad and good corruption arguing that only corruption 4 which is associated with poor institutions has a negative effect on GDP growth whilst residual corruption corruption which is uncorrelated with other governance characteristics is positively related to GDP growth with poor institutions.
This line of thought has it that an analysis of financial data is positively correlated with capital accumulation and productivity growth in developing countries and that these empirical findings are consistent with the theory that corruption helps overcome inefficient barriers. This article argues that all forms of corruption are intrinsically bad from an economic point of view justifying the contemporary global practice of combating corruption.
The role of law in development is obscure. Some see law as a transcendental notion of applied justice that has nothing to do with politics, morality and the distribution of wealth. Others see certain types of legal regimes as the environment that fosters and nourishes development. Others recognized the social effects of legalism, its political aspects and distributive function. In this part we will explore these different roles attributed to law in the field of development.
The formalists believed deduction of law to be a logical science. There could only be one legally right answer to a certain disputable fact. Law is coherent and has answers to every controversy. Law is detached from politics, morality, religion and society.
It thus, according to this theory, has nothing to do with economic development because legalism entails no political decisionism, and exhibits no distributive effects. It is rather the product of impeccable logical deduction from transcendental notions existing supra-society.
The role of the state is to preserve private autonomy, keeping each individual as an absolute lord within his dominion compartment of private rights and liberties.
Some saw in the abovementioned legal arrangements the pretext of economic development. Two attributes of logically formal rationality legalism are highly praised. First, its relative degree of calculability, second its capacity to develop substantive provisions, principally those relating to freedom of contract necessary to the functioning of the market system.
Law derivation is not a science, it is not coherent, and it does not embody answers to all. Cases are decided on its facts not legal doctrine. They also recognized the distributive function of legalism. Development as a field of study became the major concern of the post-Second World War international order. It starts off with two presumed hypotheses:.
In this coming section, I will briefly account the line of thought of the Modernization theorists, the Dependency theorists and the Neo-liberal theorists as follows. This should give the reader an idea of the current state of affairs in economic policy and where does our contemporary global practice of combating corruption come from and where it fits.
The pillars of their line of thought are: anti-traditionalism in both its material and psychological sense , 15 and an emphasis on the role of the state and that every man is derived from his own economic self interest.
According to Modernization theorists, the problem with underdevelopment is that underdeveloped societies are traditional whereas developed societies are modern. It also has to transform its means of production to industrialization and technology. They believe that once the state sets the conditions of the shift people will change on their own in pursuit of their economic best interests and hence development inevitably occurs. They further suggested several approaches to introduce modernity to society.
They are influenced by Marxian ideology. The pillar of their line of thought is the exploitation of underdeveloped societies by developed societies and the causal link between being exploited and being underdeveloped.
For them the key is to de-link underdeveloped societies from developed societies and cut the vicious circle of exploitation. Unlike the Modernists, to them underdevelopment is not the attribute of underdeveloped societies internal , but it is rather imposed by the developed via exploitation external 27 and dominance. A dependent society is one that depends upon other societies for its accumulation of capital funds, new technology, machinery, equipment of the production of capital goods and enterprise expansion.
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