Learning from previous research: Curtailing corruption and measuring it

This blog entry is part of a series that highlights insights from research for development policies and practices, supported by the Knowledge for Change Program (KCP).

In his seminal 1996 Annual Meetings speech, World Bank Group President James Wolfensohn denounced the “cancer of corruption” and offered Bank assistance to governments who would implement national programs to discourage corrupt practices. Years later, on October 21, 2003 the General Assembly of the United Nations adopted the United Nations Convention against Corruption and designated December 9 as the International Anti-Corruption Day, to raise awareness of corruption and of the role of the Convention in combating and preventing it. 

The fight against corruption had taken the center stage in the development community. In the decades to come, a myriad of anticorruption programs would be implemented across the globe. Research on corruption has shed light on how to curtail it and measure it. The KCP supported the World Development Report 2017 Governance and the Rule of Law, which provides valuable insights on corruption and the efforts to curtail it. The WDR documented top-down anti-corruption strategies, which enjoyed a certain degree of success in several OECD countries, but their effects were limited in the rest of the world. Top-down anticorruption strategies are those that assume that corruption can be curtailed by i) policies/reforms that improve enforcement of the rule of law, ii) changes in the expected returns to corruption (for example, through bureaucratic pay increases, greater transparency, or harsher punishments), or iii) simplified procedures that reduce the opportunities for corruption.

Today, we’ll highlight three pieces of KCP-financed research that shows how coalitions can lead to successful reforms, whether technology can facilitate anti-corruption efforts, and how corruption may impact investment climate and firm survival.

Do coalitions enable successful reforms?

The WDR 2017 points out that anti-corruption reforms have been more successful in places where there exist broad-based reform coalitions forged among different institutional, political and social actors.  A KCP-funded background paper for the WDR 2017 shows how this took place in Mexico. Civil society organizations (CSOs) in Mexico coalesced around a bill called 3de3, which sought to prevent, investigate, and sanction cases of corruption. If passed, it would become a transformational piece of legislation that would overhaul the Mexican anti-corruption system. Despite the initial inertia from politicians to support the bill, the country’s political elites eventually had no choice but to join the coalition and back the bill, as the political costs of not passing the reforms grew increasingly high.

The corruption and conflict of interest scandals that rocked the country in 2014 provided fertile ground for the emergence of a coalition between CSOs, academia, the private sector, and citizens to demand more aggressive political reforms. As the coalition around the bill grew stronger, and more public, it started to change the society’s preference in institutional arrangements of anti-corruption systems, which in turn affected the incentive structure among political elites. This study highlighted the impact of cross-sectoral alliances in influencing legislative reforms to fight corruption.

Can technological advancements facilitate anti-corruption efforts?

The answer is a qualified yes. A KCP-financed project on performance-based contracting in customs administration in Madagascar revealed a linked, yet tenuous relationship between technology and fighting corruption. The research team introduced a new algorithm to help detect corruption between inspectors and brokers in customs transactions.

The approach identified potential manipulation of inspector assignment by evaluating whether certain inspectors are paired excessively frequently with certain customs brokers, deviating from what conditional random assignment would predict. This methodology was applied to Madagascar’s main port, Toamasina and it unveiled that 10 percent of declarations were handled by inspectors that were not randomly assigned, plausibly because of manipulation of the IT system that assigns them.  An intervention to curb corruption by having a third party randomize inspector assignments led to the temporary disappearance of excess interaction between inspectors and brokers. However, it also triggered a novel form of IT manipulation. As WDR2017 highlighted, new technologies can foster transparency, strengthen accountability, and empower citizens, but other institutional factors, such as credible reform commitments, changes in the expected returns from corruption, and minimization of opportunistic channels of corruption, also considerably affect anti-corruption outcomes. The KCP is currently supporting a new project that will provide evidence on the impact of digital technology adoption on firm growth and demonstrate how to improve tax administration efficacy and tax compliance in Rwanda.

Do corruption impact business investment climate?

Scholars maintain that corruption would raise the transaction costs of doing business. Although bribery is an expense, broader corruption may possibly tilt the market in favor of certain firms. Using data from 27 Eastern European and Central Asian countries, a KCP-supported paper in 2009 found that bribery and red tape are two measures that were associated with increased possibility of firm exit –in ways that can push more productive firms out of business. Particularly, time spent with officials, as well as greater frequency of bribes are linked with the probability increase of exit for productive firms, but less so for more connected and less productive firms. In addition to the prevalence of corruption, other weaknesses in government services, access to finance, the strength of property rights, as well as the degree of competition all have effects on firm survival.

The authors would like to acknowledge contributions from the following projects under the guidance of task team leads (TTLs) and researchers: World Development Report 2017 – Governance and the Rule of Law (Luis Felipe Lopez Calva), Contestability and changes in tolerance towards corruption: The formation of an elite -citizen coalition in Mexico (Samantha Lach), Corruption In Customs (Bob Rijkers), Who Survives? The Impact of Corruption, Competition and Property Rights across Firms (Mary Hallward-Driemeier), Recording Small Receipts: Digital Technology Adoption at the Margin of Formalization (Florence Kondylis )

About the blog series: The Knowledge for Change Program (KCP) has launched a blog series to retrospectively highlight a selection of research projects conducted over the past 20 years, many of which still remain highly relevant and offer great lessons for development policies and practices today. Managed by the Development Economics Vice Presidency of the World Bank (DEC), the KCP promotes evidence-based policy making through research, data and analytics. To celebrate the KCP’s fourth phase launched in November 2020, this blog series will look into the wealth of knowledge researchers have generated in KCP’s previous phases, distill lessons learned, and inspire discussions on future research directions.