The 2014 FIFA World Cup is upon us. This column argues that there will be plenty of partying, but also plenty of protests fuelled by the gross mismanagement and limited economic benefits from hosting the Cup. Stadia may be ready, but much planned infrastructure has already been abandoned. Indeed, rent-seeking may be one reason nations bid for the Cup. Since the returns to transportation infrastructure are higher in poor countries, the international community should work to stamp out corruption so that poor countries can continue to host mega-events like the World Cup.
Football is actually coming home. Brazil is the spiritual home of the ‘beautiful game’. It is the only country to have competed in all 20 World Cup tournaments, it has won the tournament a record five times, and it is the only country to have won the tournament ‘away’ (Ponzo and Scoppa 2014).1 Brazilians worship football. As in all previous World Cups, the country will stop when the Seleção plays. Unlike all other Cups, however, this time there may be protests.
Jie Bai, Seema Jayachandran, Edmund J. Malesky, Benjamin Olken 22 November 2013
Eliminating corruption is a central policy goal of policymakers around the globe. It is known that corruption is a barrier to economic development because it increases the costs and risk of business activity, and deters investment. This column discusses a new study analysing the opposite causal relationship – the effect of economic growth on corruption. Both theoretical and empirical evidence show that economic growth causes the amount of corruption to fall.
Eradicating corruption ranks among the central policy concerns of economic development practitioners around the globe. Then-World Bank President James Wolfenson made the case for combatting corruption in a 1996 speech now known as the “Cancer of Corruption” address. In it, he spelled out a theoretical mechanism connecting corruption and poverty:
Based on statistical measures of different degrees of democracy vs. autocracy, this article briefly reviews the progress of democracy around the world during the past 212 years, and places democratic developments in Africa since 1960 in that context. Democracy is positively associated with education, which in turn is associated with lower fertility and greater longevity. Democracy is also associated with reduced corruption. Together, these effects suggest democracy should be good for growth – a hypothesis that is borne out by the data.
Jakob de Haan, Erik Dietzenbacher, Văn Hà Le16 June 2013
Do higher government wages reduce corruption? This column argues that they do, but only in relatively poor countries. When a country’s poor, higher government wages reduce bureaucrats’ incentive to extract illegal incomes. However, as income per capita rises, higher government wages gradually lose their effectiveness in combating corruption.
Jim Brumby, Era Dabla-Norris, Annette Kyobe, Zac Mills, Chris Papageorgiou
Defined as the abuse of public office for private gain, corruption is found to have bad effects on economic development, weaken the institutional system and create cynicism in the political life (Rose-Ackerman 2004). Quite a few economists have been troubled with the question of whether government wages should be used as a means to reduce the ‘gains’ from corrupt activities, and thus, breaking the vicious circle of high corruption and economic stagnation. However, there is very little agreement on the actual impact of government wages on corruption.
Cyprus, corruption, money laundering and Russian round-trip investment
Svetlana Ledyaeva, Päivi Karhunen, John Whalley17 June 2013
Russian involvement in Cyprus was widely recognised during the acute phase of the most recent EZ crisis. This column argues that some of this is driven by corruption-linked money laundering. Using official Russian statistics, the authors estimate a standard model of FDI location to identify usual patterns related to nations with lax anti-money laundering measures such as Cyprus and the British Virgin Islands. Funds from such nations were biased towards locating investments in the most corrupt Russian regions compared to a group of genuine foreign investors.
The financial relationship between Cyprus and Russia has received a lot of attention as a result of the recent crisis in Cyprus (Wyplosz 2013). A large amount of Russian money has been invested in this small Mediterranean economy over the last two decades. It has been estimated that about one half to a third of all Cyprus bank deposits are of Russian origin. According to the ratings agency Moody`s, there is about $31 billion in Russian money in Cypriot bank accounts: $12 billion from banks and $19 billion from business and individuals (Young 2013).
Patrick A Messerlin, Sébastien Miroudot07 September 2012
Public spending on large-scale projects is often a way of sneaking in protectionism through the back door and there are many cases of outright corruption. With the EU and US pushing hard for more open public procurement elsewhere in the world, this column asks just how open these markets are, particularly in the EU, which claims to have the most open market in the world.
Recently, the EU and US have pushed very hard for opening public procurement markets, as illustrated by the EU and US pressures on Japan and China, respectively. In particular, the EU claims that it is by far the most open market in the world. In March 2012, this belief has induced the European Commission to request from member states a mandate for closing EU public procurement markets to firms originating from countries using ‘restrictive practices’ in this domain – the so-called ‘reciprocity’ approach.
Despite best intentions, government policies can sometimes provide politicians and others with an incentive to break the law. This column analyses the link between state support for renewable energy and corruption. It provides some evidence of this connection for the case of the tradable green certificate system, a policy introduced in Italy in 1999 to promote wind power.
In many countries public support policies have been implemented over the past several years with the aim of promoting renewable energy, energy efficiency, and the transition to a low-carbon economy. At the international level, emission permit trading and dedicated funds have been used to help developing countries finance the transition to a low-carbon economy, often through new and untested financial markets and mechanisms, in countries characterised by abundant renewable resources and weak institutions (Victor 2011).
For democratic theorists, the notion that greater transparency improves accountability is axiomatic: when voters find out about political corruption, they punish the offending politicians by not voting for them again. But, the authors of CEPR DP8790 argue, many voters also respond to evidence of corruption by not voting at all – indicating that more transparency might not automatically result in a healthier democratic process.
Lifting the curtain on corruption in developing countries
Benjamin Olken , Rohini Pande21 January 2012
Recent innovations in methodology have sparked a remarkable expansion in economists’ ability to measure corruption. This column reviews these new techniques, which range from inferring corrupt links from stock prices to attempting to observe bribes undercover. It concludes that, while corruption is prevalent in poor countries, there remains little consensus about its magnitude or the best way to fight it.
In recent years, innovations in methodology have sparked a remarkable expansion in economists’ ability to measure corruption. New techniques, from inferring corrupt links from stock prices to attempting to observe bribes directly, have been combined with randomised controlled trials and other empirical methods not only to uncover how much corruption exists but also to suggest what policies might be effective to reduce it. The resulting literature represents a small window on a vast, hidden world of bribes and graft that follows surprisingly familiar economic rules.
Three's company: Wall Street, Capitol Hill, and K Street
Deniz Igan, Prachi Mishra11 August 2011
Did anti-regulation lobbying fuel the subprime crisis? This column shows that there is a strong relationship between financial industry lobbying and favourable financial regulation legislation. It argues that the financial industry fought, and defeated, measures that might have curbed some of the reckless lending practices that many think played a pivotal role in igniting the crisis.
At the end of 2007—as markets grappled with early stages of what would become the worst financial crisis in the post-WWII era and a severe recession seized the US economy—the Wall Street Journal reported that two of the largest mortgage lenders in the US spent millions of dollars in political donations, campaign contributions, and lobbying activities from 2002 through 2006 (Simpson 2007).