NCPA - National Center for Policy Analysis

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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