Corruption accounting and growth: towards a new methodology

Abstract

In this paper, we demonstrate empirically that corruption causes signicantand sizeable macroeconomic costs in terms of economic activity and economicgrowth and propose a novel methodology to account corruption losses. Thesecosts impliy that the standard microeconomic and political economy theoriesabout the causes and consequences of corruption, especially in less developedeconomies with weak institutions, low total factor productivity and unstablemacroeconomic fundamentals, are not able to explain the full magnitude andoutreach of the corruption phenomenon. After introducing corruption in anendogenous growth model, which would otherwise be a hidden tax in thecontext of the Non-Observed Economy, we estimate the macroeconomic costof corruption using Argentina 2004-2015 as a case study building on judiciaryinvestigations information and we nd it stands at a minimum accumulatedrate of 8 percent of GDP or 0,8 percent yearly. These ndings are consistentwith earlier research on Brazil and Peru´s corruption losses which have beenestimated at between at a yearly 1.3 and 4 percent of GDP.