Benjamin Powell

Corruption, Crime and Economic Growth

The relationship between corruption, crime and economic growth seems obvious to most people. Both crime and corruption increase uncertainty and the cost of doing business, so crime and corruption must discourage entrepreneurial activities that cause growth. However, the relationship between crime and growth and corruption and growth is much more complex than it first appears. Scholars studying corruption have theorized both how corruption can reduce growth but also how it can increase growth, for example, by avoiding bureaucratic delays. The results of crosscountry empirical literature on the effect of corruption on growth are mixed. Recently a new literature has emerged controlling for the quality of institutions to examine the effect of corruption on growth. In the next section of this chapter we review the existing literature on corruption and growth, highlight some of the shortcomings in the literature, and then report on some of the newer studies that examine the interaction of institutions, corruption and growth. We believe this final strand of literature provides the most accurate view of how corruption impacts growth. High levels of crime can undermine the security of property rights and confidence in the rule of law. Both property rights and the rule of law have been illustrated to be vital for longrun economic growth. However, although there is a large literature on the cost of crime, we find almost no crosscountry evidence on the impact of crime on growth rates. This is for good reason. What is a crime in one society may not be a crime in another society, making it difficult to meaningfully compare many crime statistics across countries. Furthermore, crime, interpreted literally as breaking of government laws, could actually be growth enhancing in countries that have laws that prohibit capitalist acts between consenting adults. We review some of the existing literature on crime as it relates to growth in the third section of this chapter and then develop some suggestions for future research on the impact of crime on growth. The final section contains conclusions.