CAUSES OF CORRUPTION IN THE DEVELOPING COUNTRIES

What are the causes of corruption in the developing countries?

Corruption theory and the role of natural resources in corruption processes

Table of Contents



Introduction & Methodology (1000 words)3

Introduction3

Methodology6

Literature Review - 4000 words9

Findings - 2500 words30

Conclusions & Recommendations - 2500 words41

References54

Appendices67

Interview Transcript67

Introduction & Methodology (1000 words)

Introduction

Nigeria and Angola are the two largest oil-producing countries in Africa. At the same time, corruption is rampant in both countries. The two countries share 147th position on the Transparency International Corruption Perceptions Index for 2007.2 The chairman of Nigeria's Economic and Financial Crimes Commission has estimated that more than $380 bn of public funds have been stolen or wasted by various governments since independence in 1960.3 By some accounts, more than $1 bn of Angolan oil revenues disappeared due to corruption each year in the early 2000s (McMillan, 2005). These two oil-developing countries are by no means atypical, there is considerable evidence that natural resource -developing countries on average suffer from higher levels of corruption (Leite and Weidmann, 1999; Aslaksen, 2007; Petermann et al., 2007).

Resource -developing countries also suffer more generally from a phenomenon termed “the resource curse”. Paradoxically, wealth in the form of natural resources appears to be detrimental to the economic development of a country. Resource -developing countries on average have lower growth rates, lower levels of human development, and more inequality and poverty (Sachs and Warner, 1995; Bulte et al., 2005; Gylfason, 2001a). It is estimated that a 13% increase in primary exports to GDP decreases annual growth by about 1% (Sachs and Warner, 1995). This may not sound like a lot, but given the low growth rates and high reliance on primary exports of many developing countries, compounded over a number of years, the impact is substantial. Nigeria is a case in point, where GDP per capita (in PPP terms) currently is at about the same level as in 1970, and where the share of the population living on less than $1 a day has doubled to about 70% in the same period (Sala-i-Martin and Subramanian, 2003; UNDP, 2007).4

Corruption is the main reason why resource -developing countries perform badly in economic terms. This is an implication of current theories and evidence on the resource curse. This suggests that corruption is the development problem in resource -developing countries, rather than just one of a number of problems. In particular, corruption in resource -developing countries takes two main forms, rent-seeking and patronage, both of which are economically costly. Firstly, large resource rents make rent-seeking a profitable strategy. Hence individuals and groups compete for a share of the resource rents rather than use their time and skills more productively. Secondly, resource revenues induce patronage as governments pay off supporters to stay in power, resulting in reduced accountability and a worse allocation of public funds. In various guises, these two mechanisms are at the core of current resource curse thinking.

Identifying corruption as the main problem in resource -developing countries has clear policy ...