Different countries could have differing conceptions of irruption as well as differing perspectives on the cost and benefits of corruption. Some researchers Justify that, in some countries having highly regulated, short- term consequences of corruption can have positive effects on economy and society by “greasing the wheels” of the economy, bypassing inefficient regulations and red tape, and counteracting government failure (Satan, Douglas and Judge, 2014).
Despite some positive effects, in the long- term, corruption has a significant effect on economic growth by reducing both private domestic and foreign investment, and decreasing government revenues. Governments should control corruption level by improving the management of public officials and streamlining customs procedures. These are likely to deal with the negative effects of corruption on economic growth.
One of the significant negative impacts of corruption on economic development is a threat to domestic and foreign investment because corrupt acts as an additional business cost, reduces the investment project revenue and impact on business efficiency. According to Chi©en (2014), a rising 3% in the corruption level could increase the total investment cost of the entire company by about 50%. For instant, in Vietnam, companies accept for bribes as part of the business cost such as business registration, government procurement contracts, and customs procedures.
Most companies have to pay an amount in bribes to government officials equal to the proportion of its revenues that the company achieved (ABA, Cassandra, Males, and Olsen, 2014). In addition, the report by ABA et. Al (2014) indicates that the correlation between the bribery rate and enterprises’ size is converse. However, some economists point out that in developing countries which have weak institutions, lattice instability with significant natural resources such as oil or minerals, corruption could be beneficial in foreign direct investment (Sending and Millie, 2010; Satan, Douglas and Judge, 2014).
The report by Sending and Millie claims that in these developing countries, corruption activities help reduce administrative procedures and provide a business environment effectively which attract investment in these fields by the foreign investment companies. In addition, decreasing government revenues is a consequence of corrupt behavior. When companies’ tax evasion is considered to be corrupt that may lead to a significant losing a nation’s collected tax revenue, and negatively correlated with per- capita GAP. Countries with higher corruption rates will have lower GAP per capita.
Nomad, Allah, and Reefer (2012) imply that corrupt behavior through the tax research points to report data of 71 countries in the same period time, which demonstrates that Sweden has the lowest corruption index, has the highest growth rate of real GAP per capita that is 40% per year whereas Nigeria had the least efficient institutions by corruption (corruption index of 3,1) has lowest growth rate of real GAP that is 1,2% per year. Moreover, according to ABA et. Al (2014) in 2009, while an average real GAP per capita of the ten least corrupt countries is $36,700 annually, the amount of the ten most corrupt countries is only $5,100 per year.
In addition, poor countries with high corruption level have a GAP per capita below $475 per month whereas rich countries, where corruption is controlled have a GAP index above $9,200 per month. Improving management of public officials and streamlining customs procedures with the private sector are some significant solutions which could help to deal with corrupt problems. ABA et. L (2014) found that three types of bribes which companies have to pay for their business.
The study points out that most firms spend 23% on paid bribes for expedite business registration, 35% for government procurement contracts and 70% for customs procedures. Therefore, the implementation of anti- corruption should consider from internally of the government officials sector. Moreover, corruption behavior is the result of weaknesses in public institutions and deformities in economic policies (Nomad, Allah, and Reefer, 2012). Accordingly, governments should improve public sector management, and change economic leslies which are accordant with economic conditions and social situation of the country.
Governments should consider the issue of corruption in both public and private sectors by effective government administration, enacting effective and strict legislation and the severe punishment from the Courts. However, some researchers argue that corrupt behavior could be difficult to control because of flaw existing in the legal system where public officials can collude with firms and impact on economic development (Sending and Millie, 2010). Therefore, enterprises should articulate in the anti-corruption program by legitimate business and strictly comply with law.
A lot of evidence has shown the significant consequences of corruption that has unambiguous implications for economic growth. However, corruption may be either positive or negative effect to economic growth and it depends on the standard of the institutional environment. This essay has determined the causes of corruption and has provided evidence of its possible negative impact on the economic growth. In the short-term, corruption may have some benefits to an economic development, but the issue of finance and government resources is not conducive to long- term sustainable economic development.
