What Type of Corruption?
November 5, 2002
Corruption stifles freedom and economic growth. However, there are two types of corruption: top-down and bottom-up. Bottom-up refers to low-level officials collecting bribes and sharing them with superiors, while top-down refers to corrupt superior officials buying the silence of subordinates by sharing their ill-gotten gains. Recent research analyzes the two types of corruption, using the notoriously corrupt Commonwealth of Independent States as a model.
- Firms report paying 5.7 percent of all revenues as bribes in the CIS, as opposed to 3.3 percent in the Balkans, Baltic republics and Central Europe.
- Economic growth in these other states is more than 2 percent higher on average than growth in the CIS.
After further analyzing the CIS, the researchers found that if corruption is inevitable, then top-down corruption is superior to bottom-up:
- The amount of bribes paid per investment project is smaller with top-down corruption.
- Firms have better information about the exact quantity and method of payment under a top-down corruption, meaning that firms have better information about the true costs of a project.
- The economy is larger under centralized corruption.
- Furthermore, centralized corruption is more easily controlled and restricted, leading to smaller bribes.
The researchers note that under bottom-up corruption the absolute amount of bribes is smaller. However, this reflects the fact that under a bottom-up system the entire economy is smaller, resulting in fewer opportunities for graft.
Source: Christopher J Walker, Thierry Verdeir, and Roy Gardner, "Corruption: Top Down or Bottom Up?" Economic Inquiry, Vol. 40, No. 4, October 2002.
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