Corruption

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    Corruption is the abuse of public power for private gain. Corruption acts as a major constraint on development because:

    1) Resources Allocated Inefficiently.

    A corrupt government will accept bribes from the rich elite and thus make decisions that benefit themselves and a small minority instead of developing the economy for the majority. So there is government failure and consequently an inefficient allocation of resources. Maybe the government prints a lot of money for themselves to spend, this causes hyperinflation. Living standards for the majority of the population falls because prices are too high and the value of people’s life savings are destroyed so many people will fall into poverty.

    2) Resources Stolen.

    The government may be setting extremely high taxes on the population and siphoning the economy’s money off to private bank accounts. Resources are not used to develop the infrastructure or invest in health and education. Even if an LDC has the money to develop it cannot develop because its government is corrupt and basically steals the money.

    3) Political Instability.

    A corrupt government brings political instability, domestic and foreign agents cannot plan so they cannot invest.

    4) High Prices.

    Corruption could lead to monopolies forming in the economy, higher prices and thus lower living standards for the poor.

    However, corruption may not be a major constraint on development because: – Arguably most (maybe all?) governments are corrupt, corruption becomes a development constraint when the degree of corruption is large. – Maybe other factors are more important development constraints.

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