Skidmore College Skidmore College

Creative Matter Creative Matter

Economics Student Theses and Capstone Projects Economics

2017

Does Corruptin Affect Productivity in Terms of Growth in Brazil? Does Corruptin Affect Productivity in Terms of Growth in Brazil?

Alessandro Lannes Skidmore College

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Recommended Citation Recommended Citation Lannes, Alessandro, "Does Corruptin Affect Productivity in Terms of Growth in Brazil?" (2017). Economics Student Theses and Capstone Projects. 48. https://creativematter.skidmore.edu/econ_studt_schol/48

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DoesCorruptinAffectProductivityinTermsofGrowthinBrazil?

AlessandroLannes

5/2/17

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Abstract

ThispaperexplorestherelationshipbetweenthecorruptionthatoccursinBrazilandits

effectonproductivityintermsofeconomicgrowth.Whiletherearemultiplefacetsof

corruption,currently,theonlymeasureofcorruptionisTransparencyInternational’sCorruption

PerceptionIndex(CPI).Thisindexismeasuredfrom0,mostcorrupt,to10,leastcorrupt.The

productivityofBrazilintermsofeconomicgrowthwillbemeasuredusingGDPpercapita.My

hypothesisisthatthecorruptactsthatoccurinBrazilhaveadirectnegativeinfluenceonthe

productivityofBrazil.Mainly,thisisthroughtherentseekerstheorythatpoliticalinfluencersin

Braziluseortakeresourcesfortheirpersonalgaininsteadofforthegoodofthepeople

withoutaddinganysortofbenefitforthepeople.Additionally,IwillbeusingtheSolowgrowth

modeltoexplainproductivityandgrowth.

Introduction

ThesparkthatignitedtherecessioninBrazilwasthePetrobrasscandalthatwasbrought

tolightin2013.OneofBrazil’smostinfamousmoneylaunderer’s,AlbertoYouseff,attempted

tosavehimselfbyhandingoverinformationthatledtothediscoveryofthePetrobrasscandal,

thebiggestinBrazilianhistory(Forbes,2015).Petrobrasisastate-runoilconglomerateand,

beforethescandal,itwasthe6thlargestcompanyintheworldandaccountedforalmost10%

ofBrazil’sGDP.Since2012,theirmarketcaphasdroppedbycloseto130billionUS$,someof

thatisduetothedecreaseinthepriceofoil,butit’smainlyduetothecorruptionscandal

(YahooFinance).

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Thisscandalwasthetippingpointthatledtothecurrentrecession.Afterthescandal

wasbroughttotheforefrontthevalueoftheBrazilianRealplummetedtoanall-timelowof

4.0665perdollar,fromitspreviouspriceof1.5Realsperdollar.Thismadeimportsmore

expensivethantheyalreadywere,addingtothealreadyrisingproblemofinflationinBrazil.

ThePetrobrasscandalcoupledwithrisinginflationanduncertaintyintheeconomycauseda

sharpdecreaseinforeigninvestmentsflowingintoBrazil.TheCentralBankofBrazil(BCB)met

inOctobertodiscussthecurrentissuesinBrazilanddeterminedthatmonetarypolicywouldn’t

havemuchofaneffectontheeconomyuntilthereisa“reductionofuncertainty,”meaning

thatuntilthePetrobrasscandalwindsdownthereisn’tmuchtheycando(BancoCentraldo

Brazil).ThisbringsinvestorconfidenceintheBrazilianeconomyclosetozero.

Politicalscandals,likethePetrobrasscandal,aren’tuncommoninBrazil.Corruptionhas

plaguedBrazilfordecades,ithascausedsomeofthelargesteconomicsetbacksBrazilhas

faced.OnnumerousoccasionsanalystspredictedthatBrazilwouldbecomethenexteconomic

superpower,however,corruptionhasheldthecountrybackfromachievingthiseconomic

superpowerstatus.

Whentalkingaboutcorruptionitshouldbemadeclearthattherearemultiplefacetsof

corruption.ThemostwellestablishedmeasureofcorruptionisTransparency’sInternational

measureofcorruption,thecorruptionperceptionindex(CPI).TransparencyInternationalisthe

globalcivilsocietyorganizationleadingthefightagainstcorruption.TransparencyInternational

classifiescorruptioninto3separatecategories:grandcorruption,pettycorruptionandpolitical

corruption,dependingontheamountsofmoneylostandthesectorwhereitoccurs.

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Thethreetypesofcorruptionare:

Grandcorruptionconsistsofactscommittedatahighlevelofgovernmentthatdistortpolicies

orthecentralfunctioningofthestate,enablingleaderstobenefitattheexpenseofthepublic

good.

Pettycorruptionreferstoeverydayabuseofentrustedpowerbylow-andmid-levelpublic

officialsintheirinteractionswithordinarycitizens,whooftenaretryingtoaccessbasicgoods

orservicesinplaceslikehospitals,schools,policedepartmentsandotheragencies.

Politicalcorruptionisamanipulationofpolicies,institutionsandrulesofprocedureinthe

allocationofresourcesandfinancingbypoliticaldecisionmakers,whoabusetheirpositionto

sustaintheirpower,statusandwealth.

Forthispaper,however,IwillbeusingTransparencyInternational’ssimplifieddefinitionof

corruptionbecauseitishardtodifferentiatewhereonetypeofcorruptionstopsandanother

starts.TransparencyInternationaldefinescorruptionas“theabuseofentrustedpowerfor

privategain.”

AnalyticalFramework

InordertounderstandeconomicgrowthandcorruptionIwillbeusingtwodifferenteconomic

models.Forgrowth,IwillbeusingtheSolowgrowthmodel.Additionally,Iwillbeusingrent

seekerstheoryinordertofurtherunderstandtheeffectsofcorruption,whichleadtoslow

economicgrowth.

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Inacorruptcountry,mostpoliticiansusetheresourcesavailabletothemfortheirown

individualeconomicgain.Thisisknownasrentseekingtheory,whereanindividualusesa

governmentsorcompany’sresourceforpersonalgainwithoutreciprocatinganybenefitto

society.Rent-seekerstheoryinvolvesanindividual,orpartyofindividuals,seekingtoincrease

theirshareofexistingwealth.Additionally,theseindividualsincreasetheirownwealthwithout

creatinganynewwealth.Thecaveattothistheoryisthatthereisanetlosstosociety.Thisis

accomplishedonlybymonopolies,andinthecaseofcorruption,thegovernmentisthe

monopoly.Ifwelookatgraph2,agraphofamonopoly,weobservethesignificantgain

accruedbyamonopoly.Thisgainistakenfromconsumers(society)butalsoleavesalossin

efficiency.Thisnoticeablelossinefficiencyisalsorealizedbysociety.Inthiscasesocietyisthe

peopleofBrazil.ResearchdonebyPaoloMauroconcludedthatcorruptcountriestendtospend

muchlowerratesoneducationandhealth,thisallowsgovernmentofficialstousethisextra

capitalfortheirowncorruptagenda.Duetotheinherentnatureofrentseekingbehavior,the

GDPpercapitawillstagnateordecreasesincewealthisbeingtakenawayfromsociety(Daveri,

n.d.).

ThesecondeconomicmodelbeingusedistheSolowgrowthmodel.Thismodel

specificallyfocusesontheoutputofthecountry,assumingthatitonlyproduces1good.Robert

Solowtheorizesthatoutputisaproductoftwofactors,laborandcapital.Inourcase,labor

referstothepopulationofBrazil.Anadditionalfactorthatcanhaveaneffectonoutputis

technology.Forinstance,wearealotmoreproductiveatfarmingbecauseoftheuseof

technologythatallowsustoharvestfruitsandvegetableswithlargemachinesinsteadofdoing

itbyhand.Atthesametime,thisproductivityfunctiondoesexhibitdiminishingmarginal

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returns,meaningthereisanoptimalcapitaltolaborratio.Additionally,itshouldbenotedthat

thismodelisprimarilyfocusedonlongtermeconomicgrowth(Solow,1956).

LiteratureReview

PaoloMauro,whoisoneofthebiggestcontributorstotheresearchofcorruptionhas

determinedthattheprimarycauseofcorruptionisrentseekingbehavior.Maurogivesmultiple

examplesofrentseekingbehaviorinducedbygovernments.Aslistedbelow:

TradeRestrictionsareaprimeexampleofgovernmentinducedformofrentseeking.Ifthereis

arestrictivelimitonhowmuchofacertaingoodcanbeimportedintothecountryeachyear

thenecessaryimportlicensesbecomeveryvaluableandimporterswillconsiderbribingofficials

whocontroltheirimports.Ingeneral,thisprotectsahomeindustryfromforeigncompetition

throughtariffs.Thiscreatesasemi-monopolyforthelocalindustry.Localmanufacturerswill

lobbyfortheestablishmentandmaintenanceofthesetariffs.Andsomemayevenbewillingto

bribelocalpoliticianstokeepthissemi-monopolygoing.Ifyouhaveanopeneconomy,with

freetrade,yourcountryisusuallyassociatedwithlowercorruptionlevels.Meaning,countries

tendtobelesscorruptiftheirtradeisrelativelyfreeofgovernmentrestrictionsthatcorrupt

officialscanabuse.However,thiscanalsobeseenasastrategytoboostalocaleconomy’sGDP

byforcingitspeopletobuylocallymadeproductsinsteadofimports.Thisstrategywasusedby

theUnitedStatesinthepasttoboosttheUSautoindustry.Itisworthnotingthat,inthelong

run,thisstrategywilldecreasecompetition,decreasingthepoweroftheconsumerand

inevitablyreducingorstagnatingthequalityoftheirproducts(Mauro,1997).

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Governmentsubsidiescanalsobeasourceofrentseeking.Previousstudieshaveshownthat

corruptioncanthriveunderindustrialpoliciesthatallowpoorlytargetedsubsidiestobe

appropriatedbyfirmsforwhichtheyarenotintended.Themoresuchsubsidiesareavailableto

industries,correlateswithahighercorruptionindexscore.Liketradingrestrictions,inthelong

runthiscanbeanissue,howevercountriesliketheUShaveusedsubsidiesinthefarming

industryfordecadesandtheUnitedStatesisknownasalowlevelcorruptcountry.

Pricecontrols,whosepurposeistolowerthepriceofsomegoodbelowitsmarketvalue

(usuallyforsocialorpoliticalreasons),arealsoasourceofrentseeking.Thesepricecontrols

createincentivesforindividualstobribeofficialstomaintainthelowpricesofsuchgoodsorto

acquireanunfairshareatthebelow-marketprice.Ontheotherhand,pricecontrolsare

regularlyusedbyeconomiestoensuretheprofitabilityofaproductforlowmarginproductsor

toensurethatcompaniesdon’ttakeadvantageofthepopulationintimesofcrisis.

Multipleexchangeratepracticesandforeignexchangeallocationschemesalsoleadtorent

seeking.Somecountrieshaveseveralexchangerates,oneforimporters,onefortourists,one

forinvestors,forexample.Differencesamongtheseratescanleadtoattemptsbypartiesto

obtainthemostadvantageousrate,althoughthisratemightnotapplytotheirintended

exchange.Multipleexchangeratesystemsareoftenassociatedbankingsystemsinwhichkey

bankshaveclosetiestothegovernment.Thisisdonesothatthegovernmentcanmakehuge

profitsbyarbitragingbetweenmarkets.Ifabankisstate-ownedthebankscanrationscarce

foreignexchangebyallocatingitaccordingtotheprioritiesofgovernmentofficials.Thisisabig

issueinBrazil,asmostoftheirbankingsystemisstate-owned.

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Lowwagesinthecivilservicerelativetowagesintheprivatesectorareasourceoflow-level

corruption.Whencivilservicepayistoolow,civilservantsmaybeobligedtousetheirpositions

tocollectbribesasawayofmakingendsmeet,particularlywhentheexpectedcostofbeing

caughtislow.ThisisaprimaryreasonwhymuchofBrazil’spoliceforceiscorrupt.Thisisa

constantissueinBrazil,aspoliceofficersaren’tabletofeedtheirfamilies,inturn,theyturnto

bribestomakeupforthatdeficit.

Naturalresourceendowments,suchasoil,goldandlumberareanotherexampleofasourceof

rentseekingbehavior,sincetheycantypicallybesoldatapricethatfarexceedstheircostof

extractionandtheirsaleisusuallysubjecttostringentgovernmentregulation,whichcorrupt

officialscanturnablindeyeto.Economiesrichinnaturalresourcesmaybemoresubjectto

extremerent-seekingbehaviorthaneconomieswithlittlenaturalresources(Roy,1970)

Sociologicalfactorsmaycontributetorent-seekingbehavioraswell.Publicofficialsaremore

likelytodofavorsfortheirrelativesinsocietieswherefamilytiesarestrong.Thisisconstantly

seenincorruptcountries,suchasVladimirPutingivingbuildingcontractstohisclosefriends

andfamiliesinsteadofthemostqualifiedcontractors.

Whiletheabove-mentionedformsofrentseekingare“loose”definitionsofcorruption,

asintheycanbeseenascorruptionbutalsoasgovernmentalstrategies.MariaPinottilooksat

anexampleofcorruptioninwhichshecomparesacorruptcountrieshigh-speedrailline

buildingprocesstoacleancountry’sprocessofbuildingahigh-speedrailline.Shecompares

thespendingofItaly’sgovernmentandFrance’sgovernmentonhighspeedtrainlines.Both

countriesusedprivatefirmsforthejob,however,Italy’sgovernmentisknowntobemore

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corruptthantheFrance’sgovernment.Constructiononthe125kmMilan-Turninstretchstarted

in2002andendedin2009,thetotalcostoftheprojectwas€7.8billion(€62million/km).The

constructiononthe300kmParis-AlsaceLorrainestretchalsostartedin2002andendedin

2007,thetotalcostoftheprojectwas€5billion(€16.6million/km).HadtheItalianroutebeen

builtatthesamecostoftheFrenchrouteitwouldhavecostthemonly€2billion,insteadofthe

€7.8billionpaid.NotonlywastheMilan-Turinroute4timesasexpensiveastheParis-Alsace

Lorraineroutebutitalsotooktwoyearslongertobuild.Ontopofthat,theprivatecorporation

received3.6%ofthetotalvalueoftheworkinthecaseoftheItalian’sand2%inthecaseofthe

French,that’sclosetodoubletheamountforacontractthatcostquadruplethepriceofthe

Frenchcontract(Cristina,2009).

Sinceit’salwayshardtomeasuretheeffectsofcorruptionbecauseusuallythere’smore

inputinagivensituationthanjustcorruptionit’shardtohaveaconcretemeasurementfor

corruption.However,inthiscasecorruptionistheonefactorthatshowsthedifferencesinthe

costsofpublicworksinItalycomparedtoothercountries.Thebelowgraphshowstheeffectof

alltheinefficienciesthatcorruptioncausesonproductivity.Thegraphbelowisameasureof

theefficiencyoftheavailablelaborandcapitalusedintotalproduction,thisisknownasTotal

ProductivityFactors(TPF).Inthiscase,theTPFofItalyisbeingcomparedtothatoftheUnited

States,Germany,andFrancefrom1985to2014.Asseeninthegraph,Italy’sproductivitybegan

toslowdownandeventuallydeclinearound1995,rightwhentheItalianpoliticalsystembegan

toprotectandpasslawstoprotectcorruption.HadItalyfollowedthepathoftheUnitedStates,

intermsofproductivity,itsGDPwouldbe22%higherthanobservedin2014(Cristina,2009).

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Figure1:TPF(TotalProductivityFactors)(Cristina,2009)

Thisgraphclearlyshowstheeffectofcorruptiononacountry’sproductivity.Whilethere

couldobviouslybeadditionalfactorscausingsuchadrasticdrop,itismainlyduetothe

presenceofcorruption.Asyoucanseefromfigure1,noneoftheothercountriesdeclineduntil

around2008,whichcanbeblamedontherecession,theuniformityofthelinesshowaclear

indicationthatcorruptionisthecauseforthechangeintheproductivityinItaly.

EventhoughyoucanclearlyseethecauseofcorruptiononItaly’seconomyinfigure1,

wehaveyettodeterminewhattheeffectofcorruptionisonamicrolevel.PaoloMaurowas

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oneofthefirsttodeterminethatcorruptionlowersprivateinvestment,therebyreducing

economicgrowth.Thisobservedreductioningrowthdeterminesalowerproductivityfactorin

thesecorruptcountries.PaoloMaurodidthisbylookingatninefactorsthatanyfirmwouldbe

interestedinwhenselectinganewmarkettoenter.TheninefactorsPaoloMaurousedwere:

Politicalchange–institutional,politicalstability,probabilityofoppositiongrouptakeover,

stabilityoflabor,relationshipwithneighboringcountries,terrorism,legalsystem–judiciary,

bureaucracyandredtape,corruption.Hethendeterminedthatafirm’sperceptionofpolitical

uncertaintyhelpsdeterminetheinvestmentrate.Afterwards,hewasabletodeterminethat

theperceivedmostpoliticallyuncertaincountrieswerealsothecountriesthatwerethemost

corrupt.Thisleadtohisconclusionthathighlevelsofcorruptionleadtolowinvestmentrates,

whichultimatelyleadstoalowerGDP(Mauro,1997).

TheissuewithPaoloMauro’sargumentisthathis9factorsareverybroadandcan

rangedrastically.Brazilisonbothspectrums,whenlookingattheninefactorsMaurousesto

determinepoliticalinstability.ThereisalowchanceofaninstitutionalchangeinBrazil’s

politicalsystem,however,itisimportanttorecognizethatlessthan60yearsagotheBrazilwas

ruledbyamilitarydictator.Brazildoesnothaveanytoxicrelationshipswithitsneighbors,nor

doesithavemuchterrorism.TheefficiencyofthejudiciarysysteminBraziliscorrelatedwith

thecorruptioninBrazil,youcanpaytohaveyourproblemresolvedatanexpeditedrateifyou

knowtherightpoliticalofficials.Overall,Brazilhasabigissuewithpoliticaluncertainty,the

recentPetrobrasscandaldroveDilmaRoussefffromofficeandputtheoppositionpartyin

power.ThestreetsofBrazilwerelitteredwithprotestorsthroughouttheentireprocess,calling

forsystemicchangetothecorruptsystemthatBrazilcontinuestoleechonto.

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InBrazilspecifically,itisevidentthatcorruptionerodesthepillarsofdemocracy,

underminestheethicalvaluesofindividuals,andexactsahighpriceonthegrowthand

competitivenessoftheeconomy.Marketsaredominatedbydistortionsandinefficiencies,

affectingthecountry'scompetitiveness.

InMariaPinotti’scontinuingresearchshedeterminesthatcorruptioninvolvesprimarilythree

variables:theopportunityfortheillegalacttooccur,thechancethatthecorruptactionwillbe

discoveredandthelikelihoodoftheperpetratorbeingpunished(Cristina,2011).Forexample,

intheBrazilianpublicadministrationtherearemanyopportunitiesforcorruption.Thereare

morethan20thousandpositionsincommissionforwhichthepresidentoftheRepubliccan

appointserverswithoutpublicapproval.Thesepositions,atleastinpart,arefilledbypolitical

patrons,indisregardofthecriteriaoftechnicalcompetence.

ThisrelatestoJohnMacraeargumentthatcorruptionhasalottodowithgametheory

andprisonersdilemma.Ingametheory,youalwayspickthemostoptimaloutcome,knownas

theNashequilibrium.Ifyou’reabletobenefitmorebybeingcorruptandthere’salowriskof

beingcaughtyou’regoingtopickthatoptimaloutcome.Theproblemwithcorruptionisthatit’s

alwaysagameofprisoner’sdilemma,meaningthatifbothpartiesdon’tsayanythingyou’re

notgoingtogotojail,however,ifonepartytalksandtheotherdoesn’toneismorelikelytoget

introuble.Additionally,ifbothconfessthenbothareintrouble.Sincecorruptdealsarealways

doneinprivatethereisalowriskofbeingcaughtaslongasbothpartiesstayquiet(Macrae,

1982).

WhileMaurowasabletodeterminethatforeigndirectinvestment(FDI)wasaffectedby

thelevelofcorruptionofacountry,MariaPinottiwasabletodeterminetheexacttradeoff

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betweencorruptionandFDI.Ithasbeenshownthatreducingacountry’slevelofcorruptionby

ahalfapointincreasedeconomicgrowthby1%eachyearandincreasedinvestmentlevelsby

4.9%(Cristina,2009).

However,asMaurostates,rootingoutcorruptionisdifficultbecausewhenacountryis

knowntobecorrupt,corruptioniswidespread.Itjustdoesnotmakesenseforindividualsto

attempttofightit,evenifeverybodywouldbebetteroffifcorruptionweretobeeliminated.

Forexample,thecaseofacivilservantinanadministrationwhereeverybody,includinghis

superiors,areverycorrupt.Itwouldbedifficultforthiscivilservanttodeclineoffersforbribes

inexchangeforfavors,becausehissuperiorsmayexpectaportionofthebribeforthemselves.

Additionally,ifcorruptioniswidespreadagentsarelesslikelytobecaughtorprosecutedfor

corruption.“Ifmanypeoplesteal,thentheprobabilityofanyoneofthembeingcaughtwillbe

low(Mauro,2002).”

Bycontrast,inbureaucraciesthataregenerallyhonest,arealthreatofpunishmentdeters

individualcivilservantsfrombehavingdishonestly(Againgoingbacktoprisonersdilemmaand

gametheory).Thisisanexampleofastrategiccomplementarity,wherebyifoneagentdoes

somethingitbecomesmoreprofitableforanotheragenttodothesamething.

However,politicianshavetotakeintoaccountthefactthatiftheyhurttheeconomycitizens

willnotreelectthem,whichmeansthey’llnolongerbeabletocollectbribes.Thismeans

politicianshavetodecidewhattypeofprivatebribesystemtheywishtosetup.PaoloMauro

usesanexampleoftwopoliticianspartofthesamegovernment,politicianAandpoliticianB.

PoliticianAisverycorruptandhasestablishedaprivatebribecollectionsystempurelyforhis

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owngain.Theneedtopaysubstantialbribesreducestheincentiveforinvestmentandimposes

ontheeconomicgrowth.Oncecitizensrealizethateconomicgrowthisbeingharmedbythe

corruptgovernmentthey’llbelesslikelytoreelectthegovernment,eveniftheydon’tknow

whoexactlyisatfaultforthecorruptactsthey’llstillbelesslikelytoreelectthecurrent

government.This,inturn,reducestheamountoftimepoliticianBhastoobtainthegainfrom

bribes.ThiswillmakepoliticianBmoreinclinedtoextractalargershareofcurrentoutputsand

disregardanyadverseeffectsonfutureoutputs.Inotherwords,politicianBwillwanttoobtain

aslargeofaportionofthecaketodayanddisregardpoliciesaimedatincreasingthesizeofthe

caketomorrow,becauseheknowsthatthegovernmentheparticipatesinwillbeousted.This

showshowcorruptcountriescanspiraloutofcontrol,goingfrompoliticianAandBtofuture

politicianAandBwhowillbewantingtogaintheirsharewithoutanyregardforthefutureof

thecountry,leavingittothenextversionsofpoliticianAandB.Thisleadstolessbeliefinthe

governmentandcausesthegovernmenttoloseitseffectivenessandultimatelydecreasethe

productivityoverall(Mauro,2002).Again,thisrelatesbacktorentseekerstheory,both

politicianAandBarelookingtoboosttheirowneconomicstatuswhilereturningnothingback

totheeconomyforitscitizens.

OmerGokcekusfoundawaytomeasurethelevelofcorruptionofacountrythrough

rentseeking.Hewasabletodothisthroughconspicuousconsumption,whichiswhen

consumerspurchaseagoodnotforitsintrinsicvaluebutforitssignalingvalue.Takethe

examplegivenbyGokcekus,thesilverspoon.Ifyoubuyahandmadespoonithasnogreater

utilitythanamachine-madespoon.Evenfurther,youcanbuyasilverspoonthatismadeoutof

aluminumorourofsilver,neitherhasmoreutilitythantheother.However,peoplestillbuy

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silverhandmadespoonsallthetime,eventhoughtheyarenomoreusefulthanamachine

madealuminumspoon.Gokcekuswasabletoapplythesameideaofconspicuousconsumption

oncorruptionusingluxurycars.Gokcekustookanunbalancedpaneldataof20OECDcountries

between2004and2010,usingMarklinesAutomotiveInformation,heidentifiedcarseitheras

luxuryornon-luxury.Heusedthedataoftotalluxurycarsalesinacountry,coupledwiththe

levelofcorruption(usingtheCPIscore),andtheaveragepercapitaincome.Hewasableto

determinethatluxurycarsalesare191%higherinacountrywithahighperceivedcorruption

level.Inanexample,fortheyear2007,theaveragepercapitaincomeintheNetherlandswas

$46,500andtheCPIscorewas9(meaningthecountryisveryclean)andtheluxurycarsales

were48.8per10,000people.However,inthesameyear,thepercapitaincomeinGreecewas

around$25,000andtheCPIscorewas4.6,withluxurycarsalesof33.4per10,000.HadGreece

hadasimilarCPIscoretotheNetherlandstheirluxurycarsaleswouldhavebeen11.5per

10,000people,nearlyathirdofwhatitactuallyis.Gokcekuswasabletoconcludethatthereis

apositiverelationshipbetweenthelevelofcorruptionandconspicuousconsumption

(Gokcekus,2014).Thishelpssolidifytheargumentthatrentseekingtheoryisrelatedto

corruption.

Guptaarguedthatcorruptionreducesgrowthandinvestmentandredirectsforeign

directinvestmenttowardscountrieswithlowerlevelsofperceivedcorruption.Guptaalso

concludedthathighercorruptionisassociatedwithhigherincomeinequality.Heexplainedthis

byusingtherent-seekerstheory,whereaselectfewincreasetheirwealthanddon’tcontribute

anynewwealth.Thepaperalsobacksupthetheoryofincreasedinequalityamonghighly

corruptcountriesusingTransparencyInternational’scorruptionperceptionindex(CPI)and

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foundthatthecountrieswiththehighestlevelsofperceivedcorruptionalsohadthehighest

levelsofpoverty(Gupta,1998).Guptausesevidencefrompreviousstudiestobackuphiswork,

makinghisfindingsmorecredible.Thiscanbeshownbylookingatthemostcorruptcountries

andmeasuringtheirpovertyrates,thefindingsareconcurrentwithGupta’sfindings.This

showsthatnotonlydoesrentseekerstheorydecreasetheeconomicgrowthofacountrybut

thatitalsocreatesincomeinequalities.

SimonKuznetstookanotherapproachattryingtoexplaintheinequalitydisparityof

corruptcountries.Hisargumentassumesthatcountriesthataremorecorrupthaveimport

tariffsthatlocalcorruptenterprisesbribedgovernmentofficialstoenact.Thisallowstheselocal

companiestoputtheirdesiredpriceonspecificproducts,inotherwords,increasingtheprice.

Thistakesawayfromlocalconsumers,causingthemtospendmoreonspecificproducts,giving

themlessmonetarycompensationtosave(Kuznets,1955).Thisdecreasesyourwealth,since

thelessyoucansavethelessyouhave.

AnotherstudydonebyPaoloMauro,hewasabletodeterminethatcorruption

adverselyaffectedthegovernmentspendingoneducation.Hedidthisbystudyingthe

compositionofgovernmentexpenditureandhowcorruptionaltersgovernmentexpenditure.

Previousresearchdeterminedthatschoolenrollmentratesandeducationalattainmentplay

considerablerolesindeterminingeconomicgrowth.ThisparallelsoneofMariaPinotti’s

conclusionsthattheeducationlevelofitspeopleisamajorindicatorinthwartingcorruption,

backingitupwithmultipleacademicjournalsthathavecometosimilarconclusions(Cristina,

2009).Maurofoundthatcorruptionaltersthecompositionofgovernmentexpenditure,more

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specifically,byreducingitsspendingoneducation.Maurogoesontoexplainthatthishappens

becauseoftheensuingneedforsecrecywhenpreformingcorruptacts.Onewaytodothisisto

investgovernmentexpenditureintospecialized,hightechnologygoods,whoseexactvalueis

hardertopinpoint.Thisallowsofficialstoskimoffthetopbecausetheexactvalueofsucha

highly-specializeditemisn’tfullyknown.Insteadofofficialsinvestingineducations,which

requiresfairlylow,maturetechnologywhichisaloteasiertocalculatethevalueof.Throughhis

economicmodel,hewasabletofindsignificantevidencethatcorruptionisnegatively

associatedwithgovernmentexpenditureoneducation.Inaddition,Maurowasabletofind

slightevidenceofanassociationbetweencorruptionandgovernmentexpenditureonhealth

(Mauro,1998).

Dzhumashevhasdoneadditionalresearchstudyingtherelationshipbetween

governmentspendingandcorruptionsanditseffectsoneconomicgrowth.Heconcludedthat

inlow-incomecountries,wherethewageislow,resultedinlowrentseekingandcorruption

costs.However,increasesinpublicspendingencouragesmorerentseekingandcorruption.

Theseincreasesinpublicspendingledtoadeclineinthegrowthratebecauseoftheincreased

rentseekingandcorruption,resultinginagreatersocialloss.Additionally,hedeterminedthat

low-incomeeconomieswithhighincidenceofcorruption,thesizeofgovernmentspending

shouldbelessthanforaneconomywithahigherincomeandalowerincidenceofcorruption.

Healsostatesthatgovernmentswithlow-incomeeconomiesandhighamountsofcorruption

were18.5%largerthanoptimal.Dzhumashevconcludesthatthisincreaseingovernment

spendingandcorruptionismorelikelytoreducegrowthratesbyreducingtheamountof

inflowsofforeigninvestment.Dzhumashevalsopointsoutthatthesehigherthanoptimal

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governmentspendingnumbersleadtoevenmorecorruption(Dzhumashev,2013).Thisisan

issueinBrazil,theirgovernmentcontinuestoincreaseandspendinginspecificsectors,

howevertheeffectivenessofthegovernmentorthebenefitsthepeopleofBrazilshould

receivefromalargergovernmentarenotseen.

WhileDzhumashev’sargumentsabouttheincreaseinrentseekingbehaviorand

corruptioninlowincomeeconomieswithincreasedgovernmentexpenditureaddup,it’salittle

shakyonhowhedeterminedtheoptimalsizeofagovernment.Hedeterminesthatalow

incomeeconomyis18.5%largerthanoptimaldoesn’tcompletelyaddupashedoesn’tspecify

howhedeterminedtheoptimalsizeofthegovernment.Additionally,Dzhumashevstatesthat

anincreaseinrentseekingandcorruptionduetoincreasedgovernmentexpenditurewould

declineinthegrowthrate.Hearguesthatitdecreasesduetorentseeking,however,henever

specifieshowrentseekingdecreasesthegrowthrate.ThroughthisextensiveliteraturereviewI

havebeenabletoconcludethatrentseekingbehaviorreducesgrowththroughmultiple

avenues,suchasthedecreaseingovernmentspendingoneducation.However,Dhumashev

givenoevidenceonhowrentseekingwilldecreasethegrowthrate.

WhereDhumashevleftoff,Lambsdorffattemptstoconnecttheideathatcorruption,or

rentseekingcausesadecreaseinproductivityorgrowth.Lambsdorffarguesthatcorruption

rendersgovernmentsincapableorunwillingtoachievepublicwelfareasaresultofinefficiency,

wastefulrent-seekingordistortedpublic.Theallocationofcapitalgoodswillnotbeoptimal

whenaffectedbycorruptionbecausethoseprojectsthatpromiselargeside-paymentsand

exhibitlowrisksofdetectionarepreferredtothosethatbenefitthepublicatlarge.Thebest-

19

connectedcontractorsandthosemostwillingtoofferbribesarepreferredtothoseofferingthe

bestproduct.Theeffortlevelofpublicservantssuffersfromadverseincentivesbecause

creatingartificialbottleneckscanincreasetheneedforpayingspeed-money(moneyusedfor

bribes).Themostvisiblesignoftheadverseimpactofcorruptionare‘white-elephantprojects’,

projectsthattotallydisregardpublicdemandorthatarewreckedshortlyaftercompletion.

ThereisexistingevidenceofanadverseimpactofcorruptionontheratioofinvestmenttoGDP.

Thereisalsoanadverseimpactofcorruptiononforeigndirectinvestmentsandcapitalinflows.

Bothofthesepointshavebeenprovenbypreviousliteraturereviewresearch.Thisarticle

furtherstheeffectofcorruptiononproductivitybydeterminingthatcorruptiondecreasesthe

productivityintermsofGDPtocapitalstockratio.Thecapitalstockratioisdeterminedusing

theperpetualinventorymethod.Theabsenceofcorruptionispositivelyassociatedwiththe

ratioofGDPtocapitalstock.Thisindicatesthatcorruptionreducestheproductivityofcapital.

Anincreaseincorruptionby1pointonascalefrom0(highlycorrupt)to10(Veryclean)lowers

productivityby2percent.ThiscanbeseeninthecaseofTanzania,whichloweredits

corruptionscoreby6pointsonTransparencyInternational’scorruptionperceptionindex(CPI,

themostwellknownwaytomeasurecorruption)andincreaseditsGDPbymorethan10

percentofthetotalcapitalstock(Lambsdorff,2003).

Insomeformoranotherallofthejournalarticlesdiscussedabovehavecometothe

conclusionthatcorruptionisbadforalocaleconomyasawhole.However,Leffdisputesthis,

insisting,thatcorruptionallowsforindividualstobypassbureaucraticdelayandclaimsthat

governmentemployeeswouldworkharderinordertolevybribes.

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Leffdefinescorruptionas“anextra-legalinstitutionusedbyindividualsorgroupstogain

influenceovertheactionsofthebureaucracy.”Lefflimitshisargumentofcorruptacts

furtheringeconomicdevelopmenttooneparticulartypeofcorruption“namely,thepracticeof

buyingfavorsfromthebureaucratsresponsibleforformulationandadministering

government’seconomicpolicies.”Leffarguesthatthisformofcorruptionaidseconomic

developmentintwodistinctways.First,corruptpracticessuchas“speedmoney”wouldenable

individualstoavoidbureaucraticdelay.Second,thegovernmentemployeeswhoareallowedto

levybribeswouldworkharder,especiallyinthecasewherebribesactasapiecerate(Leff,

1964).However,Leffdoesmentionthattheflowofprivatecapitalandtechnicalskillswas

insufficientforpromotinglarge-scalegrowth.

Leffalsodistinguishesbetweenbureaucraticcorruptionandbureaucraticinefficiency.

Referringcorruptionto“extra-legalinfluenceonpolicyformulationorimplementation(Leff,

1964)”.Inefficiency,however,referstonotachievingmaximumproductivity,ormakingthe

bestuseofyourresources.Thisargumentisdifficulttofollowbecauseperformingacorruptact

canbeconsideredanallocationofyourresources.Beggingthequestion,iscorruptionreallythe

bestuseofyourresource?It’shardtoarguethatperformingacorruptactisthebestuseof

yourresource.Rentseekingbehaviorislinkedtocorruptionandrendseekingisnotanefficient

useofyourresource.ThiscanbeexemplifiedbyKruegerswork.Kruegergivestheexampleof

tryingtoobtainanimportlicense.Ifyouareacorruptindividual,youwillattempttoexpedite

theprocessofacquiringthislicensebybribinganofficial.However,ifweconsidertimea

valuableresource,thefirstcorruptofficialmightnotbetheonlyonecompetingforalicense

through“extra-legal”means.Thiscausesaninefficiency,astheindividualwhoauthorizesthese

21

licenseswillbebackatsquareonebecausehe/shecan’tgiveoutalllicensesatonce(Krueger,

1974).Thisposesthequestion,ifthebestuseoftheresourcesavailabletothecorrupt

individualsiscompetingonlicesnses.

Additionally,throughLeff’sdatafindingsitwasdeterminedthatcountries,onaverage,

withhigheramountsofcorruptiondotendtogrowatafasterratethancountrieswithlower

corruptionscores.Thiscanbeexplainedbyconvergencetheorem.Countrieswithhigher

corruptionarealotsmallerthancountrieswithlowercorruptionscores.Convergencetheory

statesthatsmallercountrieswillgrowatfasterratesthanlargercountriesduetodiminishing

returns.

Additionally,JohMacraearguesagainstLeff’spoint,stating,thatdelaysarenomorethe

causeofcorruptionthantheconsequenceofit.“Delaysprovideanindicationofthe‘shadow

price’ofanarrangement.Therewillbedelaysbeforethearrangementisnegotiated,butthe

contractingofthearrangementwillpresumablybringthesedelaystoanend.Althoughbribery

byoneindividualorfirmmayleadtoamoreefficientresolutionofthatindividual’sorfirm’s

problem,thiscannotbesoforeveryone.Ifeveryoneresortstobriberynoonewillgainmuch,

yettheunderlyingproblemsmotivatingthebribing–queues,greedformonopolyprofits,

impatienceinfrontofstructuralinefficienciesallremain(Macrae,1982).”

Mostoftheliteraturetendstosupportthetheoriesofotherliteratureusedinthis

study.OneexceptiontothisistheLeff’spaper,aspreviouslydiscussed.Therearealsosome

dissimilaritiesbetweenpapersthatsharesimilartheories,forinstance,PaoloMauromentions

thatinthepresenceofcorruptionsomebusinessmenareoftenmadeawareofupfrontbribes

22

requiredbeforetheprojectevengetsgoing.Therefore,businessmenofteninterpretthisform

ofcorruptionasnecessarytax.Eventhoughthistaxcanbeseenitcanalsobeharmful,given

theneedforsecrecyandtheuncertaintythatthebribe-takerwillfulfillhispartofthe

agreement.Thisdiminishesthebriber’sincentivetoinvest,however,thisisacommonpractice

inhighlycorruptcountries(Mauro,1997).However,JohnMacraeseethis“tax”completely

differently.ToMacrae,theideathatthesebribesareanintegralanddeeply-rootedmethodby

whichmenmakedecisionsintheThirdWorldandconsiderthemcostsdoesnotlineupwith

Macrae’sideologies.Macraeclaimsthatthesebribesshouldn’tbeseenasincurredcostsbut

insteadasprofitmotives.Itcontradictstheviewsthatcapital-richcountriesofbeingacost.Ifa

capital-richcountryisgainingprojectsorpositionsincapitalpoorcountriesitshouldbeseen

moreasaninvestment.Thisisbecauseyou’reexpectingtoseereoccurringbenefits,whichyou

wouldn’tnormallyexpectfromacost(Macrae,1982).Whilethisisaminordetailwhetherthis

isseenasacostoraninvestmentdrasticallychangestheundertone.Ifit’sseenasan

investment,you’reexpectingtoyieldcontinuousreturnsandcouldpossiblyseethisasan

opportunity.However,ifyouseethisasacostyoumightthinkofitasataxthatisjustapartof

doingbusinesswiththeotherparty,whichisn’ttruebecauseyou’reexpectingsomethingin

return.

Toreview,throughpreviousresearchwe’vebeenabletodeterminethatrentseeking

behaviorislinkedtocorruption.Thishas,inturn,changedthecompositionoftheof

governmentexpenditure,aspublicofficialstendtoinvestgovernmentspendingintohigh

technology/newtechnology,asitishardtopinpointtheexactpriceofnewertechnologies.

Thistakesspendingawayfrommature,lowtechnology,sectorssuchaseducationwherethe

23

costsareknown.Previousliteraturehasalsodeterminedthatanincreaseintheeducationlevel

ofitscitizenswoulddecreasethelevelofcorruption.

Methodology

Sample

Thegoalofthisstudyistodeterminewhethercorruptioninfluencestheeconomic

growthofBrazil.Inthisstudy,GDPpercapitaofBrazilisthedependentvariable.Sincethereis

noformalwaytomeasurecorruption,Iwillbeusingaperceivedscoreforcorruption.The

score’scomefromTransparencyInternational,theleaderinthefightagainstcorruption.The

perceivedscorebeingusedistheCorruptionPerceptionIndex(CPI),whichisanindexmeasure

fromascaleof0to10.0meaningyouarethemostcorruptand10beingthecleanestcountry.

SincethisisonlyaperceivedindexandhasnotrueequationIwillbemeasuringseveralother

factorstodeterminetheimpactcorruptionhasoneconomicgrowth.Onemeasurementthat

relatesbacktorentseekerstheoryistheincomeinequalitywitnessedinmorecorrupt

countries.Itiswellknownthatincorruptcountriestheincomedisparitybetweentherichest

andpoorestisveryapparent.Thisdirectlyrelatestorentseekerstheory,astheindividualsin

powerusethoseresourcesfortheirownpersonalgainwithoutaddinganybenefittothe

economyforthepeople.InordertofurtherobservetheeffectorcorruptionIwillalsobe

testingthegovernmentspendingofBraziloneducationasapercentageofGDP.This,again,

directlyrelatestorentseekerstheoryascorruptofficialstendtospendlessoneducation

(officialstakecapitalfromtheeducationsector)inordertofundtheirownendeavors.Thisis

difficulttoprovebecausethese“endeavors”corruptofficialsparticipateinarekeptinsecret.

24

However,previousresearchdonebyMaurohasdeterminedthatmorecorruptcountriestend

tospendlessoneducation.Anothervariableistheunemploymentrate,whichdirectlyrelates

toSolowgrowthmodel.Ifyouhavelessthanoptimalamountoflaborintheworkforcethen

youreconomyisnotoptimallyproductive.Thistranslatesintostagnantordecreasingeconomic

growth.Additionally,Iwillbeusingforeigndirectinvestment(FDI)tomeasurecapitalasa

factorofeconomicgrowth.ThisappliestotheSolowmodelasanincreaseincapital,inmycase

FDI,increasestheproductivitywhichleadstoeconomicgrowth.Alldata,exceptfortheCPI

score,hasbeentakenfromtheWorldBank.

Ihypothesizethatrentseekingbehavior,whichhasledtoanincreasedincomedisparity

betweentherichandpoorandalowpercentageofgovernmentexpenditurebeingspenton

education,willleadtostagnatingordecreasingeconomicgrowth.Previousresearchhas

alreadydeterminedthatrentseekingbehavior,observedinmorecorruptcountries,hascaused

lowerlevelsofspendingoneducationandgreaterincomeinequality.

Additionally,Ihypothesizethatanincreasedunemploymentratecoupledwithlower

foreigndirectinvestmentwillleadtoslowereconomicgrowth.Previousresearchhasalready

determinedthatmorecorruptcountrieshavelowerlevelsofFDI.

Measures

Thereare6measuresbeingusedinthismodel.Thedependentvariableinthismodelis

GDPpercapitameasuredinUS$anddefinedasgdppci.Thereare5independentvariablesinthis

model.ThefirstistheCPIscore,which,aspreviouslymentioned,isaperceivedscoreof

corruptionanddefinedascpii.ThesecondindependentvariableistheGiniCoefficient,which

25

measuresthelevelofinequalityofacountry.TheGiniCoefficientisdefinedasGinii.TheThird

independentvariableisunemploymentrate,whichiscalculatedasapercentageanddefinedas

Unemployi.ThefinalindependentvariableisgovernmentspendingasapercentageofGDP,

whichisdefinedasGovtEi.

Design

Model

Model1: gdppci=β0+β1cpii+β2Ginii+β3Unemployi+β4FDIi+β5GovtEi+εi

SampleRegression

Results

Thissectionanalyzestherelationshipbetweenproductivityandseveralfactorsthat

relatetocorruption.Thisstudyfindsthattheunemploymentrate,levelofforeigndirect

investment,andpercentageofgovernmentexpenditurespentoneducationhaveadirecteffect

ontheproductivityofBrazil.

Table1showstheresultsbetweenproductivityandmultiplefactorsthatrelateto

corruption,inthismodel,Unemployi,FDIi,andGovtEiareallstatisticallysignificant.Thismeans

thatahigherunemploymentrateandalowerlevelofFDIwilltranslatetodecreased

productivity,whichwillinhibiteconomicgrowth.Additionally,ithasbeendeterminedthat

lowerpercentagesofgovernmentexpenditurespentoneducationalsodecreasesthe

productivityofBrazil,whichmydatasupportsaswell.

26

However,notallvariablesbeingtestedwerestatisticallysignificant.Mostnotably,the

CPIscore,whichisaperceivedindexofthelevelofcorruptioninBrazil,wasnotstatistically

significant.Thisissurprisingbecausethisscoredirectlyreflectsthelevelofcorruption

witnessedinBrazilandhasnoeffectonproductivity.Additionally,thelevelofincome

inequalityhadnoeffectontheproductivity.Thisissurprisingaspreviousresearchhas

determinedthatlargeincomeinequalitycanbeobservedincountrieslabelledasmorecorrupt.

Itshouldalsobenotedthat,eventhoughtherewasnomulticollinearitydetectedoverall,there

wasmulticollinearitydetectedbetweenthepercentageofgovernmentexpenditurespenton

education,theginicoefficient,andtheunemploymentrate.Ihypothesizetheexplanationfor

thismulticollinearitybetweentheginicoefficientandunemploymentexistsbecausethelower

theginicoefficientusuallytranslatestolowerunemploymentlevels.Additionally,Ibelievethat

theCPIscorewasinsignificantbecausetherewasnomajorchangeintheCPIscorethroughout

mydataset.ThisjustmeansthatBrazilhasbeenperceivedascorruptsincethestartofmydata.

WhiletheCPIscorestayedconstanttheothervariablescontinuouslychangedinvalues.

Table1:

Variables Model1

CPIi 71.1%(.711)

Ginii 54.6%(.546)

Unemployi .4%***(.004)

FDIi .1%***(.001)

27

GovtEi .1%***(.001)

Constant 735.81

R2 99.7%

Allstandarderrorsareinparentheses

*indicatessignificanceat10%levelofsignificance

**indicatessignificanceat5%levelofsignificance

***indicatessignificanceat1%levelofsignificance

Table2:

Variables VIF

GovtEi 6.24

Ginii 6.04

Unemployi 5.38

FDIi 4.49

CPIi 2.06

MeanVIF 4.84

28

Diagnosis

ThepurposeofthisstudywastodeterminewhetherthecorruptioninBrazilhasinfluencedthe

productivityintermsofeconomicgrowth.Thesignificanceofunemployment,FDI,and

percentageofgovernmentspendingoneducationprovesthatthereisacorrelationbetween

productivityandcorruptioninBrazil.Throughpreviousliteraturewewerefirstableto

determinethatrentseekerstheoryiscorrelatedtocorruptionthroughconspicuous

consumption.Knowingthatrentseekingbehaviorandthelevelofcorruptionarecorrelated,

wewereabletodeterminethathighercorruptionwasassociatedwithhigherincome

inequality.Again,thiscouldbeexplainedthroughrentseekerstheory.Themorecorrupta

countryisthemorelikelyindividualsinpoweraretotakepublicresourcesandusethemfor

theirowneconomicgain,withoutreciprocatingthebenefittothepeople.Additionally,

previousresearchdonemyPaoloMaurodeterminedthatincreasedlevelsofcorruption

decreasesthelevelofFDIofacountry.Itisalreadyknownthatforeigndirectinvestmentisa

factorofgrowth,thecorrelationbetweenproductivityandFDIofmymodelstrengthensthis

argumentevenmore.

Therentseekingbehaviorexhibitedbyindividualsinpowerincreasestheincome

disparityasonepartygetsrichofpublicexpenditure,whiletheotherstrugglestogetby.While

previousresearchalignswithmyhypothesisthatahigherGinicoefficientcorrelateswithlower

levelsofproductivitythiscorrelationwasnotobservedinmymodel.Thiscouldbedueto

multicollinearity.Thenextbitoftheliteraturesolidifiestherelationshipbetweenthelevelof

corruptionandthelevelofgovernmentexpenditurespentoneducation.Priorresearch

29

determinedthatschoolenrollmentandeducationalattainmentplayrolesindetermining

economicgrowth,additionallyPinotticoncludedthatthelevelofeducationaidsinthwarting

corruption.Thisisinlinewithmyhypothesisthatlowerpercentagesofgovernment

expenditurespentoneducationdecreasestheproductivityandgrowthrateofBrazil.My

hypothesisshowsthatthereisacorrelationbetweenpercentageofgovernmentexpenditure

spentoneducationandproductivity.Thissolidifiesthetheoriesofpreviousresearch.

Previousliteraturehasbroughtoutobservationsofrentseekingbeingcorrelatedto

corruptionandincomeinequality.Theliteraturehasalsobeenabletopinpointcorrelations

betweeneducationandcorruption.Myadditiontotheresearchhasshownthatnotonlydowe

observearelationshipincomeinequality,educationlevels,FDIandcorruption,butwecanalso

observearelationshipbetweenincomeinequality,educationlevels,FDIandproductivity.This

translatestothelevelofcorruptionbeingdirectlycorrelatedtothelevelofproductivityofa

countryintermsofgrowth.However,thereareacouplethingstonote.Itisunclearwhether

thelevelofcorruptionaffectstheproductivityorwhetherthelevelofproductivity(orgrowth)

affectsthelevelofcorruption.Evenwiththevariablesthiscangobothways.Brazilcouldhavea

decreasedlevelofcorruption,whichincreasestheFDIbroughtintothecountry,raisingits

productivity.Orthelevelofproductivitycouldincrease,causingmorefirmstoinvestintothe

Brazilianeconomy,causingadecreaseincorruption.It’shardtoknowwhichvariablecauses

whichvariabletochange.Additionally,itcouldbesomethingentirelyunrelatedthatdecreases

thelevelofcorruption.It’shardtoknowbecauseactsofcorruptionaren’tpublicinformation

andarekeptsecret.

30

However, the available research can tell us a lot. Many organizations and researchers of

corruption have called for greater transparency in the government, which is hard to achieve.

Although, we know that the education level of the population aids in thwarting corruption,

meaning if there were more policies geared towards getting people educated it could reduce the

level of corruption. Maria Cristina Pinotti has done some excellent research displaying the costs

of corruption and how it affects our lives and what it could change. Thepriceofcorruptioncosts

BrazilbetweenR$41.5andR$69.1billionperyear.AccordingtothereportCorruption:

EconomicCostsandCombatProposals,thecostofcorruptionrepresentsbetween1.38%and

2.3%oftheGrossDomesticProduct(GDP).Ifinvestedineducation,forexample,thiscould

increasethenumberofstudentsenrolledinthepublicelementaryschoolnetworkfrom34.5

millionto51million,inadditiontoimprovingthelivingconditionsoftheBrazilian."The

extremelyhighcostofcorruptioninBrazilimpairstheincreaseinpercapitaincome,growth

andcompetitivenessofthecountry,compromisesthepossibilityofofferingbettereconomic

conditionsandsocialwelfaretothepopulation,andtocompany’sbetterinfrastructure

conditionsandAmorestablebusinessenvironment,(Cristina,2011)."Thereportalsopoints

outthatifthemoneygapinthecountrywerelower,thenumberofhospitalbedsinpublic

hospitalscouldrisefrom367,397to694,409.Thedeviantmoneycouldalsohousemorethan

2.9millionhouseholdsandbringbasicsanitationtomorethan23.3millionhouseholds.Andall

this,withoutadoubt,influencesthecompetitivenessofthecountry.

ThisshowsaclearinfluencecorruptionhasovertheeconomicwellbeingofBrazil.While

it’shardtomeasuretheeffectsoffaddingpublichospitalsorfundingforeducation,allprevious

researchpointstoariseinthelevelofeducationdecreasingthelevelsofcorruption.

31

Additionally,anincreaseineducationwouldincreasetheskillofthelaborforce,givingthem

theopportunitywithmorewellskilledjobsandincreasesthechancesofinternational

companiescomingtoBraziltohirethenewskilledworkforce.Thiscouldboosttheproductivity

ofBrazilasitwouldencourageFDIandincreasethelevelofeducationofthecountry.

Nowthattherehasbeenarelationshipdeterminedbetweenthelevelofcorruptionand

productivitythenextstepsshouldbedetermininghowtoboostproductivity/growthofBrazil,

whiledecreasingthelevelofcorruption.Thisisnoeasytask.Futureresearchshouldfurther

investigatethebehaviorofcorruptindividualswithrelationtogametheory.Iffutureresearch

candeterminetheexactpointatwhichthebehavioroftheindividualorpartychangesfrom

believingthecorruptactisworththeextrarisktobelievingthatit’sbettertostayawayfrom

corruptionthiswouldgreatlyenhancethefightagainstcorruption.Thisresearchcanbestarted

bylookingathowmuchextracompensationisneededforanindividualtoconsiderperforming

acorruptact.Thisresearchshouldnotonlylookatmonetaryincentivesbutalsothepsychology

behindanindividualchoosingtobecorrupt.Aretheydoingitbecausetheyhavenofearof

beingcaught?Orforthemonetaryincentive?Ifyoucanfindthemotivatorsanddetractorsfor

individualsperformingcorruptactsthere’sagreaterchanceatloweringlevelsofcorruption.

32

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