Corruption accounting and growth: towards a new methodology
| Pages | 43-57 |
| DOI | https://doi.org/10.1108/JFC-04-2019-0039 |
| Published date | 22 January 2020 |
| Date | 22 January 2020 |
| Author | Martin Grandes,Ariel Coremberg |
| Subject Matter | Financial crime,Accounting & Finance,Financial risk/company failure |
Corruption accounting and
growth: towards a
new methodology
Martin Grandes and Ariel Coremberg
CONICET-Universidad de Buenos Aires, Buenos Aires, Argentina
Abstract
Purpose –The purpose of this paper is to demonstrateempirically that corruption causes significant and
sizeable macroeconomic coststo countries in terms of economic activity and economicgrowth. The authors
modeled corruption buildingon the endogenous growth literature and finally estimated the baseline (bribes
paid to public officials)macroeconomic cost of corruption using Argentina2004-2015 as a case study.
Design/methodology/approach –The authors laid the foundations of a new methodology to account
corruption lossesusing data from the national accounts and judiciary investigationswithin the framework of
the Organisation for Economic Cooperationand Development (OECD) non-observed economy (NOE) instead
of subjective indicators as in the earlier literature. They also suggested a new method to compute public
expendituresoverruns, including but not limited to public works.
Findings –The authors found the costs stand at a minimum accumulated rate of 8 per cent of gross
domestic product (GDP) or 0.8 per cent yearly. These findings provided a corruption cost floor and were
consistent with earlier research on world corruption losses estimated at 5 per cent by the World Economic
Forum and with the losses estimated at betweena yearly rate of 1.3 and 4 per cent and 2 per cent of GDP by
Brazil and Peru’scorruption, respectively.
Research limitations/implications –The authors would need to extend theapplication of their new
suggested methodology to further countries. They are working on this. They would need to develop the
methodologyin full to compute the public works overruns input to future econometricwork.
Originality/value –In this paper, the authors make a threefold contribution to the literature on corruption and
growth: first, they laid the foundations toward a new methodology to make an accounting of the corruption costs
in terms of GDP consistent with the national accounts and executed budgets; on the one hand, and the OECD NOE
framework, on the other. The authors named those corruption costs as percentageof GDP the “corruption wedge.”
Second, they developed an example taking corruption events and a component of their total costs, namely, the
bribes paid to public officials, taking Argentina 2004-2015 as a case study. Finally, they plugged the estimated
wedge back into an endogenous growth model and calibrated the growth–corruption path simulating two
economies where the total factor productivity was different, at different levels of the corruption wedge.
Keywords Economic growth, Argentina, Corruption, Methodology, Accounting
Paper type Research paper
1. Introduction
Corruption is an endemic and structuralphenomenon, inherent to modern economies, which
has been subject to theoretical and empirical studies (Mauro, 1995;Ehrlich and Lui, 1999;
Aidt, 2009;Campos et al., 2010;Ahmad et al., 2012;Malgwi, 2016;Grandes and Yeo, 2019)
and to public scrutiny across the globe. Does corruption affect economic growth and
welfare? If yes, which are the mechanisms and channels of transmission through which
corruption bears upon growth, and in which direction? One lingering debate that still
provides a powerful research motivationis whether corruption greases or sands the wheels
JEL classification –O47, O54, H54, d73, e23, y E26
Corruption
accounting
and growth
43
Journalof Financial Crime
Vol.27 No. 1, 2020
pp. 43-57
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-04-2019-0039
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
To continue reading
Request your trial