What Type of Corruption?

What Type of Corruption?


Corruption stifles freedom and economic growth. However, there are two types of corruption: top-down and bottom-up. Bottom-up refers to low-level officials collecting bribes and sharing them with superiors, while top-down refers to corrupt superior officials buying the silence of subordinates by sharing their ill-gotten gains. Recent research analyzes the two types of corruption, using the notoriously corrupt Commonwealth of Independent States as a model.



Firms report paying 5.7 percent of all revenues as bribes in the CIS, as opposed to 3.3 percent in the Balkans, Baltic republics and Central Europe.

Economic growth in these other states is more than 2 percent higher on average than growth in the CIS.

After further analyzing the CIS, the researchers found that if corruption is inevitable, then top-down corruption is superior to bottom-up:



The amount of bribes paid per investment project is smaller with top-down corruption.

Firms have better information about the exact quantity and method of payment under a top-down corruption, meaning that firms have better information about the true costs of a project.

The economy is larger under centralized corruption.

Furthermore, centralized corruption is more easily controlled and restricted, leading to smaller bribes.

The researchers note that under bottom-up corruption the absolute amount of bribes is smaller. However, this reflects the fact that under a bottom-up system the entire economy is smaller, resulting in fewer opportunities for graft.



Source: Christopher J Walker, Thierry Verdeir, and Roy Gardner, "Corruption: Top Down or Bottom Up?" Economic Inquiry, Vol. 40, No. 4, October 2002