Corruption and Poverty in Developing Countries

1. Corruption and Poverty in Developing Countries Ludmila Clarke lc3862a@american.edu American University School of International Service

2. Research Question & Research hypothesis • Research Question: • Relationship Between Corruption and Poverty: Does Corruption increase poverty. • Research hypothesis: • H0:Corruption has no direct consequences on economic factors that in turn produce poverty • H1:Corruption has direct consequences on • economic factors that in turn produce poverty

3. Background Info • Corruption is a cause of poverty and a barrier to successful poverty eradication. It could destroy the efforts of developing countries in order to alleviate poverty. Corruption’s relation to poverty are numerous and common. In the public sector, corruption delays and diverts economic growth and deepens poverty. Alternatively, poverty invites corruption as it weakens economic, political and social institutions. • Corruption is one of the major determinants of poverty. Combating corruption is therefore a crucial part in the poverty reduction process. High levels of corruption aggravate the living conditions of the poor by distorting the entire decision making process connected with public sector programs. Corruption deepens poverty by hampering productive programs such as education and health care at the expense of larger capital intensive projects which can provide better opportunities to extract illegal incomes

4. Literature Review 1.The World Bank’s World Development Report for 2000/01: Attacking Poverty summarized current thinking on the corruption-poverty linkage as follows: The burden of petty corruption falls disproportionately on poor people …For those without money and connections, petty corruption in public health or police services can have debilitating consequences. Corruption affects the lives of poor people through many other channels as well. It biases government spending away from socially valuable goods, such as education. It diverts public resources from infrastructure investments that could benefit poor people, such as health clinics, and tends to increase public spending. 2. Karstedt, S. (2001). The culture of inequality and corruption: A cross-cultural analysis of corruption. http://www.aic.gov.au/conferences/occasional/karstedt_2.pdf. Karstedt (2001) in her study tested corruption against income distribution. Results showed that countries with high income inequality have high levels of corruption, while those with high levels of secondary education and a high proportion of women in government positions have experienced decreasing levels of corruption. The relation between corruption and income inequality was nonlinear, indicating that after countries attain a specific level of income equality, corruption exponentially decreases.

5. Data • Unit of analysis: country • Source of the data: • Pippa Norris International Relations Data  Sets • Dependent variable • Gross domestic product (GDP) • Independent Variable • Literacy rate • Corruption • Freedom level

6. Descriptive Statistics

7. Bivariate analysis • i)Bivariate analysis shows that all of the independent variables, are associated with the dependent variable at a statistically significant level. • ii) The association is strong and positive for independent variables that are statistically significant. The Pearson’s R statistic reveals that the relationship is positive for all statistically significant independent variables.

8. Regression Analysis, Dependent Variable/ GDP per Capita

9. Findings & Policy Implications of the research • The empirical findings suggest that corruption and poverty go together, with causality running in both directions. Hence, it is necessary to address the integrated strategy to reduce poverty and fight corruption. In other words, the attempts to reduce poverty must be complemented by serious efforts to reduce corruption. • Anti-corruption programs might yield important poverty reduction results programs that succeed in reducing corruption will contribute to poverty alleviation: • · Increase economic growth • · Create more equitable income distribution • · Strengthen governance institutions and capacity • · Improve government services, especially in health and education • · Increase public trust in government.