Competition for services and resources under a rent-seeking society: An analysis of its effects on economic growth in developing countries.

Abstract

This research attempts to identify and assess the effect of corruption on development and economic growth in less developed countries (LDCs). The methodological undertaking is twofold. The first is to see whether proxy variables could be imputed effectively to measure the concept of corruption. The second is to see if there is a significant relationship between the proxy indicators. The research identifies rent-seeking and price distortion as important and dynamic catalyst that affect economic growth and development. The data used to measure price distortion were those available from the World Bank Staff Working Papers, 1983, authored by Ramgopal Agarwala. In that paper, the author classifies thirty-one nation-states as high or low on a distortion performance scale. These thirty-one countries made up the initial data set used in creating the proxy for what is considered the major culprit of underdevelopment in LDCs. This study creates a linkage in the concepts of rent-seeking and corruption. Principally, the study finds no significant differences in the two concepts other than their semantic applications. Rent-seeking and corruption both address the issue of contrived transfers that distort an economy and, when such transfers become rampant, destroy economic performance. Both concepts do interfere with the efficient operation of a nation's institutions and public policy. The regression analysis shows that rent-seeking and price distortion explain about 59 percent of the variance in the shifts in economic growth in LDCs. Also rent-seeking and price distortion is negatively but significantly correlated with economic growth. This study indicates, through empirical analysis and impressionistic evidence, that to a large extent the lack of economic growth and development in LDCs is attributed to an internal dynamic--corruption. The study in its final analysis addresses the sub-Saharan region, and concludes that sub-Saharan Africa has not experienced much economic growth and development in the past two decades because of the pervasiveness of corruption within these nations.