FAQs:

Causes & consequences of corruption

From the research knowledge base: What do we know about the causes and consequences of corruption?
QUESTIONS AND ANSWERS ON THIS PAGE:

In what kind of environment does corruption thrive? Where is corruption most prevalent (countries and sectors) How does corruption affect peoples' lives? Why is it that anti-corruption laws are not always enforced? Do strong executives/presidents impact on corruption? Why can't governments contain corruption effectively without the help of others? In what way is corruption related to: The level of economic development? Economic liberalisation? Democracy? Free press? Poverty? Gender? Low salaries? What is the role of: International trade? International corporations? Direct foreign investment? Off-shore banking and tax havens? Money laundering? International (organised) crime? What impact does corruption have (and how) on: Growth and development? Poverty eradication? Human rights? Environment? Private sector development? Development assistance and aid?

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What are the costs of corruption: In economic terms? In social/cultural terms? In political terms? What is: Corruption Perceptions Index? Bribe Payers Index?

In what kind of environment does corruption thrive?

Corruption can grow in a variety of political and economic environments but it thrives when bad government makes it impossible to control. While the importance of different factors can vary from place to place and from time to time, it seems that, for corruption to flourish, certain key preconditions are necessary: 1. A set of imperatives and incentives which encourage politicians and officials to engage in corrupt transactions, which include low and irregular salaries for officials with large dependent families. Such officials may feel compelled to become corrupt, and political instability and economic uncertainty encourages politicians to exploit current opportunities. Very few African officials can anticipate lifelong job security or a guaranteed pension. 2. The availability of multiple opportunities for personal enrichment. Some economic environments are much more conducive to corruption, in particular mineral and oil rich environments are more fertile territories than subsistence agriculture. The size and growth of public spending will help define the possibilities for corruption. Where there is extensive discretion over the allocation of economic costs and benefits. 3. Access to and control over the means of corruption. Motive and opportunity create the possibility but there have to be ways of actually engaging in corruption. These might include control over an administrative process such as tendering or having access to offshore accounts and the techniques of money laundering. 4. Limited risks of exposure and punishment. Corruption will thrive where there are inadequate and ineffective controls (both internal and external). Policing, detection and prosecution encourages corruption. Where the media are controlled and censored, corrupt politicians and officials have less to fear. The incidence of corruption is a result of the strength of incentives, the range and scale of opportunities, the availability of means and the risks of punishment. Corruption thrives on bad governance where controls are weak and decision-making is opaque, arbitrary and lacking in accountability mechanisms. It is therefore more likely to flourish in dictatorships than democracies and where there are extreme inequalities of wealth and power.

Where is corruption most prevalent (countries and sectors)?

Corruption is difficult to measure, but most experts are in broad agreement with the rankings produced in the Corruption Perception Index (CPI) published annually by Transparency International since 1995. This is the best tool currently available, although there are issues about

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distinguishing between types and levels of corruption and concerns about the alleged precision of the measurement (to one decimal place on a scale of 0-10 with 0 being the most corrupt). The 2001 CPI showed that corruption was perceived to be most prevalent in developing and transition countries and this is entirely consistent with all the CPIs published since 1995. In 2001 the CPI included 91 countries and shows the countries where corruption was thought to be most prevalent as: Africa: Asia: South America: Transition States: Europe: Nigeria - ranked 90: Uganda - ranked 88: Bangladesh - ranked 91: Indonesia - ranked 88: Bolivia - ranked 84: Ecuador - ranked 79: Azerbaijan - ranked 84: Ukraine - ranked 83: Greece - ranked 42: Italy - ranked 29: score 1.0 score 1.9 score 0.4 score 1.9 score 2.0 score 2.3 score 2.0 score 2.1 score 4.2 score 5.5

Grand corruption mostly occurs in relation to large procurement projects and is most prevalent in public and private construction projects, in roads, dams, hospitals, airports; and in arms and defense contracts, in new weapons technology, aircraft purchase, warships, artillery pieces. Petty corruption occurs where citizens and companies seek to evade duties and taxes and when officials abuse their regulatory discretion by attempting to extort money from citizens and companies. Thus petty corruption is extremely prevalent in customs and excise, i.e. smuggling, illegal import and export, in taxation, i.e. evasion of income, business and sales taxes, in licensing/permits, for instance taxis, cars, market stalls, and in motoring, for instance in police/army checkpoints and vehicle checks. In relation to customs and excise and taxation, corruption can be grand as well as petty.

In what way is corruption related to the level of economic development?

There is no firm, fixed correlation between any particular level of economic development and the incidence of corruption. Corruption can be prevalent in countries with low, medium and high levels of economic development. According to the 2002 CPI, there is more corruption in Italy than there is in Botswana and there is more corruption in Germany than there is in Chile. In the 1960s and 1970s, many experts argued that corruption was best understood as a phase of economic development. They thought it would first intensify and then decline as economic development occurred and they pointed out that this was what had happened in Western Europe and North America. This analysis was flawed. It assumed that developing countries would develop rapidly, and that their development path would follow that of developed countries, and it assumed that the problem of corruption had largely been solved in the developed world; economic development had caused it to 'wither away'. Both assumptions proved wrong. The development process in many parts of the developing world (and especially in Africa) appears stalled and those countries experience high levels of corruption. Elsewhere, as in the 'Asian Tigers', rapid economic growth and development have occurred but usually accompanied by high levels of corruption. Yet remarkably low levels of corruption accompany Singapore's economic development.

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In the developed world, corruption scandals have become an everyday feature of life in Italy, France and some states in the USA, and these 'corruption eruptions' do not seem connected to any change in the economic development of these countries. Levels of economic development do affect the forms and sectors where corrupt transactions take place. Petty corruption is particularly prevalent in developing countries where it is necessary to pay a small bribe to secure services that ought to be provided free of charge. While this practice has largely disappeared from many developed countries, their greater public resources and higher incomes mean that corrupt transactions tend to be grand rather than petty.

In what way is corruption related to economic liberalisation?

Economic liberalisation is seen as a major way of tackling corruption and prompting economic growth but it has also been identified as a source of corruption. It involves redefining the role of government and the relationship between the government and the economy. Corruption can be explained in terms of the abuse of state power. A large state machine, which intervenes and regulates intensively and extensively, offers fertile territory for corruption. Politicians and officials will have a great deal of individual power which many are likely to use for personal gain. Advocates of economic liberalisation argue that, if the state is the main source of corruption, then cutting back the size of the state and restricting its activities will, almost by definition, reduce the opportunities for corruption. The main aims of economic liberalisation are to improve the efficient operation of the market and correcting market distortions by reducing state subsidies. It is associated with the privatisation of state enterprises, liberalising trade, lifting exchange controls, reducing the size of the civil service and deregulating industry and commerce. The experience of privatisation in many developing and transition economies has been to sell state assets to the political and economic elite at below market prices in a non-transparent and corrupt manner. The 'sale' of state enterprises has, in extreme cases, been little more that the legalized theft of state resources. Downsizing the state may appear to reduce the overall opportunities for corruption, but the downsizing process itself offers new opportunities for corruption. This new corruption may be seen as a transitional and temporary price worth paying for a longer-term reduction in corruption. But economic liberalisation policies may actually facilitate corruption in the longer term if, in reducing the size and role of government, it also reduces the capacity of government to identify and combat corruption. Anti-corruption strategies invariably accord a prominent role to state institutions and there is a risk that economic liberalisation may reduce further the efficiency and effectiveness of the state.

In what way is corruption related to democracy?

The Corruption Perception Index consistently shows that the countries, which appear to be the least corrupt, are all long established democracies. The so-called 'Third Wave' of democratisation in the early 1990s in developing and transition states might thus be seen as promising future reduction in levels of corruption in those states. But the relationship of corruption to democracy is far from simple and there is no straightforward correlation between levels of democracy and levels of corruption. This is partly because both corruption and democracy are contested concepts and difficult to measure.

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The relationship partly depends on how firmly rooted democracy is in a particular country. Many modern states claim to be democracies and appear to have some democratic forms and processes but, for most, democracy is still fragile and poorly institutionalised. For corruption to flourish, office-holders must posses the discretion to abuse their public role for their private benefit. But democracies are usually thought to impose limits on the discretion of politicians and possess means of holding them to account for their actions. As political accountability increases, it increases the risks for corrupt officials of exposure and punishment. The ultimate sanction on politicians in a democracy is defeat in elections, which removes them from office and the opportunities for corruption. In a democracy, opposition groups and parties will monitor the conduct of office-holders, expose corruption in government and generally hold the government accountable for its performance. But the prospects of having orderly, structured and open political competition in an environment where corruption is deeply entrenched and pervasive are poor. In such circumstances, the office holders seek to buy off opponents, bribe voters and electoral officials and generally corrupt the democratic process. The persistence of differing degrees of corruption in established democracies shows that no particular set of political arrangements is a panacea for eliminating corruption. But established democracies usually have an underlying consensus on the values, rules and processes of political change. Politics is not seen as a zero sum game and, while corruption may persist, it does not endanger the constitutional order.

In what way is corruption related to a free press?

Corruption is secretive and private and the corrupt most fear public exposure. Corruption is therefore the enemy of openness and transparency. Where corrupt politicians want to keep the public in the dark, a free press can shed light and help inform and empower the public. Where the press is owned or controlled by the state, it will report only information which is acceptable to the state. State censorship is one mechanism of social control exercised by governments who do not command public trust. Curbing press freedom is an important means of ensuring that corrupt officials are not held accountable. The freedom of the press can be threatened by persecution of journalists (this can involve requiring journalists to disclose their sources thereby exposing corruption whistleblowers, deporting journalists who are not nationals of the country), restricting the flow of information (official information may be tightly restricted by official secrets acts so that corrupt actions remain concealed), newspapers may be intimidated by people working on behalf of powerful corrupt individuals, and imposition of strict libel laws can be made to protect the 'reputations' of corrupt politicians. A free press offers a vital way of challenging the powerful to account for their actions. It gives poor people a voice, a way of articulating their concerns. It helps educate people about what is going on in their name. For members of civil society, a free press is an essential prerequisite for ensuring that government is open and responsive. When the political class has been bought off by corruption, it falls to the press to question, to probe and to act as a watchdog for public integrity. Press reports can force the disclosure of incriminating information and prompt police investigations of corruption. But often the press is handicapped also because there are few journalists and they lack professional training, there are no Freedom of Information laws that can secure access to government decision-making processes, and investigative journalism is too expensive and timeconsuming.

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In what way is corruption related to poverty?

Contemporary discussions of poverty have broadened the concept from a narrow income-based definition to a more inclusive notion of 'capability' poverty, which addresses issues of health, literacy and social exclusion. But whatever definition is used, petty and grand corruption have direct and indirect impacts on poverty. Corruption perpetuates and exacerbates poverty in a variety of ways including: Diverting resources and benefits towards the rich and away from the poor. Disturbing the pattern of public spending and investment by encouraging large capitalintensive projects to maximize bribe receipts. This reduces the resources available to governments to reduce poverty through education and social programmes. Imposing an additional unofficial 'tax', which the poor are least able to pay. Reducing tax revenues to governments and thus a reduction in public services that benefit the poor. Undermining social and political stability with consequences that leave poor people more insecure. Reducing economic growth and thereby reducing the opportunities for the poor to escape from poverty. Perpetuating social exclusion and preventing the poor from acquiring the capability to challenge inequalities of power and resources. Depriving the poor of their legal rights and entitlements.

The overall impact of corruption is to damage the prospects for development and thus the prospects of the poor. Most corruption rewards the already relatively rich but some poor people are themselves engaged in corruption and thereby receive some material benefit. Where bureaucratic salaries are low and paid irregularly, or not at all, and officials have many dependents, they have a strong incentive to accept bribes. In these cases, poor officials may benefit but the poor in general suffer. Corruption contributes directly to poverty by depriving the poor of public services and benefits, by denying them political, social and legal rights and by distorting development priorities. Corruption encourages the poor to see government as predatory and oppressive rather than enabling and their sense of powerlessness and exclusion is reinforced.

In what ways is corruption related to gender?

The relationship between corruption and gender can be explored in three ways: Women's experiences of corruption and the extent it differs from men's experiences. The question of whether there are psychological and behavioral differences in the ways in which women and men perceives and reacts to corruption. The role of women in strategies aimed at reducing corruption.

Research suggests the following conclusions: Women are disproportionately more likely to suffer from corruption than men. Women across different societies appear to be less corrupt than men. Empowering women seems to help reduce levels of corruption.

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Corruption involves illegitimate and unequal access to, and use of, resources. In general, women have less access to, and control over, resources than men. Women have less education, lower incomes, less access to capital and credit and less control over their lives and property. Women are underrepresented in politics, bureaucracy and business and, because they are disadvantaged politically, economically and socially, women are both more vulnerable to the impact of corruption and less able to challenge the corrupt. Research sponsored by the World Bank argues that women are more trustworthy and more public spirited than men. Other research shows that women are less involved in bribery and less likely to condone bribe taking. One way of helping to reduce corruption is by looking at the role of women in countries where corruption is low. Research shows a correlation between a larger share of women in the labour force and in parliament and lower levels of corruption. This association holds true even when comparing countries with the same civil liberties, education, legal institutions and income levels. Where countries adopt specific measures to narrow gender gaps, for example, more equal rights to employment, to education, to health services and to public and political office, they seem likely to gain a range of economic and political benefits including a reduction in corruption. Countries where women have greater rights and participate more in public life tend to have cleaner business and government.

In what ways is corruption related to low salaries?

When officials are unable to meet their minimal living costs from their salaries, corruption will always be prevalent. But the relationship between salary levels and corruption is complex. Low salaries can provide a powerful incentive for officials to become corrupt but they only form part of the environment in which corruption flourishes. The incidence of corruption depends more crucially on the wider economic, political and social context. What criteria can be used to determine whether salaries are so low as to exacerbate corruption? Are there problems in recruiting and/or retaining staff? To what extent have salary levels been eroded by inflation? Are they low in relation to jobs available in the private sector? Are they low compared to expatriate workers?

Different answers to different questions offer different perspectives on what is meant by 'low salaries'. The issue of low salaries is also connected to the relative size and viability of the public and private employment sectors. When the private sector is small with relatively few white-collar employment opportunities, as in the case in much of Africa, the tendency is for the public sector to expand to meet the demand for employment. Most developing countries have large public sectors, too large for the resources available to pay them. The consequence is that salaries of officials and especially junior officials are depressed. Only by operating a smaller public sector is it possible for most developing countries to pay adequate salaries. There are difficult choices here for governments: Low salaries seem to encourage corruption but also enable more people to enjoy some kind of regular income.

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A smaller, better paid bureaucracy may be less inclined to corruption but there is likely to be a significant increase in unemployment and a consequent risk to political stability.

Many countries have chosen to retain large public sectors for social welfare reasons. But low wages, sometimes irregularly paid, in a context of rapid inflation are likely to ensure that the corruption of low paid officials is widespread and almost unavoidable.

What is the role of international trade?

International trade is a major source of large-scale corruption. The Bribe Payers Index clearly shows that a large number of companies from major exporting countries are very likely to offer bribes to gain or retain business. Countries that give a high degree of protection to their economies may still experience domestic corruption but they enjoy some insulation from the bribery of international corporations. But international trade is often cited as an important contributor to economic growth and development and developing and emerging market economies are under pressure from the International Monetary Fund, the World Bank and the World Trade Organisation to liberalise their policies on international trade. If tariff barriers are high, foreign exporters hoping to penetrate new markets may use bribery to gain special exemptions or concessions from governments. But domestic economic interests may be fearful of foreign competition and seek to influence governments to keep tariffs high. This influence may be a straightforward bribe or it can take the form of large contributions to election campaign funds. When tariff barriers are lower or non-existent, there is no impediment to the flow of goods other than the ability to pay. But when tariff barriers are high, they encourage smuggling and the corruption associated with it. Corruption thrives when there are shortages, 'bottlenecks' in supply caused by government-imposed distortions of the market. Many developing countries are apprehensive about liberalising their trade policies because they are fearful of the consequences. Groups and interests previously favoured by protection will see their incomes threatened and may use illegitimate means to protect their positions. Opening up to foreign trade and investment may force a restructuring of the economy and serious economic dislocation. Corruption flourishes in periods of economic and political uncertainty as politicians and officials seize their chances. Theoretically, free trade increases efficiency and investment but corruption thrives on inefficiency and increased trade for the corrupt politician means more opportunities for bribes. Liberal trade policies, like corruption, tend to favour a pattern of growth that favours the rich.

What is the role of international corporations?

International corporations are the supply side of grand corruption. If they did not offer bribes to gain contracts, concessions and exemptions, there would be a dramatic fall in grand corruption.Grand corruption particularly arises from mining and oil/gas concessions, construction projects, and sales of military equipment.

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The need of international corporations to enhance their profitability drives them to seek new markets and new opportunities. Competition with other international corporations means there is always a search for competitive advantage and corruption is often seen as an important and necessary method of enhancing or securing profits. The Bribe Payers Index (BPI) 2002, shows that 'large numbers of multinational corporations from the richest nations are pursuing a criminal course to win contracts in the leading emerging market economies' (Peter Eigen, Transparency International Chairman). Such activities serve to undermine global free trade and signal that many corporations pay only formal attention to international bribery conventions. According to the BPI, corporations were most likely to bribe to get construction contracts. It also shows that corporations with headquarters in Russia, the People's Republic of China, Taiwan and South Korea were thought most likely to offer and pay bribes to win or retain business. In relation to the more mature developed countries, corporations from Italy, the United States and France also showed a relatively high propensity to bribe. International corporations with headquarters in Australia, Sweden and Switzerland were thought least likely to offer bribes. The BPI data shows not only that the OECD Anti-Bribery Convention has made no difference to the use of bribery by international corporations but also that less than 20% of survey respondents were even aware of the Convention. In their defence, international corporations argue that they are more often the victims of extortion than the initiators of bribes and business reality suggests that, if they refuse to pay a bribe, there will always be another corporation ready to do so. BPI data also indicates that domestic companies are even more likely to offer bribes than international corporations.

What is the role of foreign direct investment (FDI)?

If corruption is deeply entrenched and pervasive in a country, it is likely to discourage FDI because it raises the costs and uncertainties of making investments. FDI is widely believed to be an essential and important ingredient of economic growth that, in turn, is seen as vital to poverty reduction. FDI adds to total investment in a country and provides a means of transferring production technology, skills, innovation and 'best practice' to the recipient country. In practice, FDI has been a mixed blessing. It can deliver some benefits but it can also undermine local businesses and financial institutions. In some cases, foreign investors use illegitimate means to 'persuade' governments to allow them to invest. Bribery is also common when foreign companies are only prepared to invest if they can secure special privileges. If economic liberalization is intended to end market distortions, FDI sometimes works in the opposite direction. Foreign companies seek special privileges, which are particular to them in the form of exemptions from tariffs and taxation policies. They may also bribe governments to exclude foreign investment from other countries and companies. Corrupt governments make agreements with foreign firms, which allow the firms to do business on very favourable terms, often to the economic disadvantage of the local population. Foreign direct investment often involve contracts in which the foreign investor gains the profits and the government bears the risk.

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FDI often flourishes only because of the special privileges extracted from the government and frequently these privileges are the result of corruption. In this sense, FDI sometimes comes at the high price of undermining democratic processes. This is particularly true for FDI in minerals, oil and other natural resources where foreign investors offer huge bribes to obtain the concessions at below market prices. FDI is inextricably linked to the supply side of corruption, which is illustrated by the Bribe Payers Index.

What is the role of offshore banking and tax havens?

Offshore financial centres are places where financial assets acquired through illegal means can be securely held. Global economic liberalization means that funds can be moved very quickly and offshore centres play an increasingly large role in the movement of money. Their attraction to the corrupt is that they are physically and legally separated from more conventional states. Most are located in small jurisdictions or microstates and the majority are found in small island economies. Their financial activities include offshore banking (both wholesale and international private); offshore funds, trusts and offshore companies. Anyone wishing to conceal and secure funds derived from corruption, organized crime, drug trafficking or tax fraud will be in need of an offshore bank and tax haven. The biggest users will operate multi-currency bank accounts and sophisticated asset management employing complex structures of offshore companies and trusts spread across several different offshore financial centres. According to the leading authority on offshore banks, they have hitherto proved uncontrollable. Microstates with limitations of size, population and natural resources find such centres an attractive development option. For the corrupt, they offer three advantages: Their structures are deliberately opaque and they offer what they call 'customer confidentiality' or what others term strict bank secrecy. They are outside the jurisdiction and regulation of mainland economies. The constitutional status of such microstates and dependencies is somewhat ambiguous and ill-defined. This creates further room for financial manoeuvre and uncertainty about how to restrict their activities.

Since the late 1990s, there has been concerted international action in the form of the Financial Action Task Force (FATF), which is intended to make the activities of offshore banks more transparent and make it more difficult for the corrupt to conceal their assets. National governments, including Britain, now take a closer interest in what is happening in their dependencies. If banks have to ensure that their money is clean, the offshore centres will lose their attraction to the corrupt.

What is the role of money laundering?

Money laundering involves 'washing' dirty money clean. Money laundering has the same relationship to corruption as a receiver of stolen goods has to a thief. Every thief needs to dispose of stolen goods to avoid detection and prosecution but at the same time the thief doe not wish to give up the material value of the goods. Having receivers of stolen goods is a necessary condition for thieves to operate on any scale or over a length of time.

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The aim of any corrupt transaction is to generate a profit for an individual or group and money laundering is the processing of these criminal profits to disguise their illegal origin. Money launderers enable the corrupt to enjoy their criminal profits without revealing their original source. For the corrupt, the problem is how to gain control of illicit funds without attracting attention to the underlying activity or themselves. The answer is to disguise the sources by changing the appearance of the profits and by locating them in places where they are less likely to attract interest from law enforcement agencies. Money laundering has three phases: Placement stage where illegal funds are introduced into the financial system and broken down into a number of different financial packages. Layering stage where the launderer goes through a series of conversions and/or movements of the illicit funds to distance them from the source and make it more difficult to track. Integration stage when the illicit funds are re-integrated into the legitimate economy by, for example, buying real estate or investing in conventional businesses.

Money laundering is essential if large-scale corruption is to continue because the corrupt want to make use of their criminal profits. The incentive to take a large bribe would be reduced if the corrupt had no means of recycling the funds and reintegrating them as 'clean' money into the economy. Similarly, without money laundering, the risks of engaging in grand corruption would be much greater and some might think they outweighed the potential benefits.

What is the role of international (organised) crime?

Organised crime and corruption are intimately connected: where you find organised crime, you invariably find corruption. The origins, growth, sustainability and global expansion of organised crime are fundamentally dependent on corruption. Corruption of the criminal justice system and, in particular, of the law enforcement agencies is a necessary condition for the survival of organised crime. Criminals engaged in activities with high risk and substantial capital outlays, for example, international drug trafficking, require some assurances that their investments are secure and they are protected against loss. Unlike legitimate entrepreneurs, they cannot ask insurance companies to offset their risks, so they resort to bribery. Police forces and customs departments are especially vulnerable because they operate at the front line of law enforcement. No major criminal enterprise can sustain its activities over a prolonged period without the consent and protection of elements in the relevant police forces. Police corruption scandals around the globe consistently demonstrate intimate corrupt connections between police officers and criminals. The most vulnerable police are those engaged in curbing illegal markets such as trafficking in drugs and people, pornography and prostitution. Corruption is an important tool used by organised crime to minimise the risks inherent in conducting illegal activities. Bribery is used not only to corrupt police and customs officers but also to corrupt tax officials, juries and judges. When organised crime has fully penetrated the machinery of the state, it is hard to distinguish between governments and gangsters. In such cases, bribery reaches into the political class and

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politicians are bought, or at least rented, like any other commodity or service. The corrupt and the criminal also collaborate because of their shared need to launder the proceeds of their illegitimate activities and hide them away in offshore banks and tax havens. Organised crime and corruption both transcend national boundaries and it is difficult for national governments to regulate them effectively. They are inextricably linked and you cannot combat one without simultaneously tackling the other.

What impact does corruption have on growth and development?

Corruption delays, disturbs and diverts growth and development. Its impact is difficult to measure directly because corruption normally occurs within institutions, which have other inadequacies and weaknesses. It is therefore difficult to separate out corruption as an independent variable especially because corruption appears to be both a cause and effect of inefficient and unaccountable institutions. What is clear is that, when taken with other forms of institutional weakness, corruption is a cause of low economic growth. Corruption is believed to have a significant impact on lowering investment, both foreign and domestic. It does so because potential investors perceive it as an unwarranted and pernicious tax. It raises the cost of investing without providing any guarantee of producing the required results. Corruption therefore increases the uncertainty and risk attached to investment as well as reducing the incentive for entrepreneurs. According to IMF research, lowering investment accounts for at least one third of corruption's overall negative effects. To implement sustained development programmes, governments need secure, reliable and expanding revenue sources, but where corruption occurs in the form of tax evasion, there is a corresponding shortage of funds for productive investment. Corruption can also influence the willingness of the donor community to provide aid and development assistance. High levels of corruption can cause donors to suspend, reduce or withdraw development assistance. When aid is not withdrawn it can be diverted to corrupt, nonproductive purposes. Even when it is not diverted, aid allows corrupt governments to replace regular government spending which is then released for use in projects with high corruption potential. When corruption takes hold, spending is diverted from productive programmes, such as education, with a high correlation with econom

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