The Comparative Politics of Corruption: Accounting for the East Asian Paradox in Empirical Studies of Corruption, Growth and Investment (1972)

Jul 3, 2026

Empirical research shows corruption can reduce investment and slow growth, but the document tests how robust these relationships are across countries using cross-country regression and growth-accounting approaches. Using four corruption datasets spanning different time periods, it finds corruption generally slows growth and/or reduces investment in most developing nations, especially small ones, while increasing growth in large East Asian newly industrializing economies. The results support an East Asian paradox explanation based on stable, mutually beneficial exchanges between government promotional privileges and bribes/kickbacks.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages19

Reading Time48 min

Introduction

Research Question and Motivation

Data and Corruption Measurement

Country Size Differences (Small vs. Large)

[www.elsevier.com/locate/worlddev](www.elsevier.com/locate/worlddev) World Development Vol. 32, No. 6, pp. 999–1017, 2004 􀀁 2004 Elsevier Ltd. All rights reserved Printed in Great Britain 0305-750X/$ - see front matter doi:10.1016/j.worlddev.2003.12.002 The Comparative Politics of Corruption: Accounting for the East Asian Paradox in Empirical Studies of Corruption, Growth and Investment MICHAEL T. ROCK and HEIDI BONNETT * Hood College, Frederick, MD, USA Summary.—Numerous empirical studies demonstrate that corruption reduces investment and/or slows growth. But how robust are these relationships? This question is answered by conducting a series of crosscountry regression tests using four diﬀerent corruption datasets. We ﬁnd that corruption slows growth and/or reduces investment in most developing countries, particularly small developing countries, but increases growth in the large East Asian newly industrializing economies. The latter ﬁnding provides solid empirical support to a country case literature that explains the East Asian paradox––the combination of high corruption and high growth––in terms of stable and mutually beneﬁcial exchanges of government promotional privileges for bribes and kickbacks. 􀀁 2004 Elsevier Ltd. All rights reserved. Key words—East Asian NICs, growth accounting, comparative politics of corruption 1. INTRODUCTION Several recent empirical studies (Kaufmann, Kraay, & Zoido-Lobaton, 1999; Knack & Keefer, 1995; Li, Xu, & Zou, 2000; Mauro, 1995) demonstrate that corruption reduces investment and/or slows economic growth. Several other empirical studies (Smarzynska & Wei, 2000; Wei, 2000) extend these ﬁndings by demonstrating that corruption retards foreign direct investment and shifts the composition of capital ﬂowing into countries with more corruption in speculative directions. 1 These results are largely consistent with the neoclassical rent-seeking literature (Boycko, Shleifer,& Vishny, 1995; Krueger, 1974; Murphy, Shleifer, & Vishny, 1993) . Taken together, this body of theoretical and empirical work provides the basis for a new growth industry on good governance and development. 2 Just how robust is the relationship between corruption and investment on the one hand and corruption and economic growth on the other hand? This question is answered by conducting a series of growth accounting, or crosscountry multiple regression tests of the relationships between corruption, investment and growth. What follows diﬀers from other work on this topic in several important ways. To begin with, we searched for and collected data on all known published measures of corruption. This yielded four corruption data sets over four diﬀerent time periods that provide the basis for what appears to be one of the most comprehensive empirical tests of the impact of corruption on growth and investment. 3 Unlike several other studies on this topic, corruption is deﬁned as the use of public oﬃce for private * We would like to thank the Summer Research Institute (SRI) at Hood College for supporting this research. The SRI provides opportunities for particularly promising undergraduates to work closely with a faculty member on a research project. We would also like to thank Sang Kim, Jonathan Krieckhaus, Allen Hicken and his graduate students, as well as four anonymous reviewers for their helpful comments and suggestions. Final revision accepted: 1 December 2003 . 1000 WORLD DEVELOPMENT gain, rather than as institutional quality, bureaucratic ineﬃciency or the degree of red tape within a bureaucracy. 4 This provides a clearer test of the relationship between corruption, investment and growth. Our crosscountry regression tests are partially motivated by the observation that the relationship between corruption and investment and growth in our data sets appears to be diﬀerent for small and large counties. 5 There are several reasons to suspect why this might be so. On the one hand, large countries have

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What is the key finding regarding East Asian newly industrializing economies compared with most developing countries?

Corruption slows growth and/or reduces investment in most developing countries, but increases growth in large East Asian newly industrializing economies, supporting an explanation of the East Asian paradox.

Jul 3, 2026

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