How Does Growth Affect Corruption? Exit, Empowerment and Voice in India

• In Event: The Politics of Public Goods in India: New Debates and Evidence

Abstract

Some scholars argue that economic growth in developing countries reduces corruption. And yet, the effects of growth on corruption can vary across public services in similar institutional environs. Why does growth reduce corruption related to some public services and not others? Drawing on India’s experience during a period of high growth, we model the effects of rising incomes on the economic and political incentives facing a corrupt, rent-maximizing bureaucracy, but consequence-averse government charged with delivering a public service. The economic incentive to seek bribes rises and falls with demand for the service. This economic incentive to demand bribes is counteracted by the political pressure exercised by concerned citizenry, which is in turn a function of the political voice of those citizens with a stake in the service. Rising incomes have ambiguous effects on this voice, because they induce higher income citizens to exit the public service, but empower those still reliant on it. It therefore follows that the effect of growth on corruption depends upon whether it increases or reduces demand for the service, increases or reduces voice, and which of these effects is more powerful. Our general finding, across a range of public services in India, is that the actual trajectory of bribery is the opposite of what one would have expected based on demand trends alone. This implicates the dynamics of voice as the likely explanation. We conclude that, unless growth is used to empower low-voice citizens or ways are found to limit high-voice exit, growth is likely to be a mixed blessing for tackling everyday corruption – while it shrinks the range of functions that are subject to corruption, it reinforces the tendency for corruption to act as a “tax on the poor”.

Authors

• Amit Ahuja, University of California, Santa Barbara

• Aashish Mehta, University of California, Santa Barbara