Impact of Corruption on GDP Growth

A PTI report tells that Government of India has lowered its estimate of GDP growth, from around 9% to 8% now. Pranab Mukherjee says this is due to high oil prices and higher rates of interest done to curb inflation. “If oil prices continue to rise, it would be difficult to achieve higher GDP. GDP may come down to 8 per cent from [the projected] 9 per cent,” Mr. Mukherjee said.

But what no one is bothered about is how large scale corruption in government impacts GDP growth of a nation. I had given a thought on this before and I was certain that as corruption increases, GDP growth of the nation should come down. Also, more corrupt people sending money in Swiss and other foreign banks makes the situation worse too. Reviewing the way our current govt was managing the affairs and the highest than ever corruption cases and scandals coming out in the open, I thought this was going to cost us dear. But I didn’t have empirical data to prove my point. Now, thanks to the US researchers, I have something to fall back on. 

Mushfiq Swaleheen of Florida Gulf Coast University has done a research on exactly this topic of how corruption impacts GDP growth. His study is titled “Economic growth with endogenous corruption: an empirical study”. As such his major discovery was that “In deeply corrupt countries such as Congo, incidences of corrupt practices actually enhance economic growth, perhaps by helping companies sidestep onerous rules.” But that is only at the extreme. I understand India doesn’t fit into that set. But going one step ahead, his finding was really hitting for countries like India: 

“For a country with average endemic corruption, a one-standard-deviation increase in corrupt incidences depresses per-capita GDP growth by 0.12 percentage points.”

Now this is exactly what I used to say, and what logically followed too! And now we have the statistics too! No wonder when our GDP figures would come out next year, and if we see a major debacle, our government and economist ministers will blame it on inflation, higher rates, oil prices, etc, and no one will speak about corruption. But we the public, should understand and think it over. After all, this country doesn’t belong to a Sonia Gandhi or a Pranab Mukherjee alone – this country belongs to all of us! And all of us can make a difference by democratic means too! Awareness is the foundation of any democracy.

- Rahul