Corruption, Public Investment, and Growth

IMF Working Papers, October 1, 1997

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Corruption, Public Investment, and Growth

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Bibliographic details

• Authors: Vito Tanzi, Hamid R Davoodi
• Published: October 1, 1997
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451929515.001

Summary findings

• Corruption, particularly political or “grand” corruption, distorts the entire decision-making process connected with public investment projects.
• The degree of distortions is higher with weaker auditing institutions.
• Evidence shows that higher corruption is associated with:
  • (i) higher public investment;
  • (ii) lower government revenues;
  • (iii) lower expenditures on operations and maintenance; and
  • (iv) lower quality of public infrastructure.
• The evidence also shows that corruption increases public investment while reducing its productivity.
• These are five channels through which corruption lowers growth.
• Implication: Economists should be more restrained in their praise of high public sector investment, especially in countries with high corruption.

Evidence and channels

• Corruption affects public investment at multiple stages of decision-making and implementation.
• Weaker auditing institutions amplify distortions caused by corruption.
• The net effect observed is higher levels of public investment but lower productivity and quality of the resulting infrastructure.
• Channels identified that link corruption to lower growth include reduced government revenues, underinvestment in operations and maintenance, and lower infrastructure quality.

Policy implications and recommendations

• Exercise caution in advocating high public sector investment without accounting for the level of corruption and strength of auditing institutions.
• Strengthening auditing institutions could reduce the degree of distortion in public investment decisions.
• Improving governance and reducing political (“grand”) corruption can help ensure public investment translates into productive infrastructure and growth.

Publication and metadata

• Title: Corruption, Public Investment, and Growth
• Authors: Vito Tanzi, Hamid R Davoodi
• Date: October 1, 1997
• Series: Working Paper No. 1997/139
• Issue: 139
• Volume: 1997
• Pages: 23
• DOI: https://doi.org/10.5089/9781451929515.001
• Stock No: WPIEA1391997
• ISBN: 9781451929515
• ISSN: 1018-5941
• Subjects: Capital spending, Corruption, Crime, Current spending, Expenditure, Infrastructure, National accounts, Public investment spending
• Keywords: capital, Capital spending, Corruption, corruption index, corruption-investment relationship, Current spending, GDP, Global, government revenue-GDP ratio, growth, Infrastructure, infrastructure investment, investment, investment budget, productivity, public investment, Public investment spending, spending, WP
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Source: "Corruption, Public Investment, and Growth", IMF Working Papers, Vito Tanzi and Hamid R Davoodi, October 1, 1997.

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