Negative Effect on Growth via Human Capital Allocation

Abstract

Corruption is generally defined as the use of public position or a position of power for private gains (Bardhan, 1997). The incentive to abuse public power often stems from its financial benefits and the associated benefits (even more power) that come with larger finances. Corruption often involves the exchange of money by the briber in a bid to obtain power (or preferential treatment). It is a form of rent seeking that often leads to inefficiencies and the misallocation of resources meant to improve the public’s welfare.1 Bardhan (1997) gives instances of where corrupt government officials purchase more complex equipments than required in order to enable them to inflate costs against the public’s discretion. Corruption also retards growth through various other means; it discourages investment (Mauro, 1995) and is a hindrance to the growth of local firms who have to constantly pay bribes to go through the rigid bureaucracies (Fissman and Svensson, 2000)