1. ICPS Roundtable, Kyiv, November 6th, 2000
Governance and Controlling Corruption is Central for Socio-Economic Development and Growth: New Reports and Evidence
Presentation by Daniel Kaufmann, The World Bank, on New Books and Research on ‘Quality of Growth’ and ‘Anticorrruption and State Capture in Transition’
ICPS Roundtable, Kyiv, November 6th, 2000

2. Broadening our Perspective: Assessing Governance
Control of Corruption (or Graft)
Rule of Law
Lack of Regulatory Burden
Government Effectiveness
Voice and Accountability
Political Stability and lack of Violence

3. Quality of Rule of Law by Region
Good
Poor

4. %

5. ( EIU 1997-98, Selected Countries )
Corruption in the Banking Sector
( EIU , Selected Countries )
High 4
Corruption 3 2 1
Low
Corruption
Chile
Syria
Mexico
Turkey
Hungary
Ecuador
Russia
Hong Kong
Panama

6. CORRUPTION DETERS FOREIGN INVESTORS:
Probability of Investment Loss due to Corruption (within 5 years)
TURKMENISTAN 95
COLOMBIA 79
GEORGIA 71
PAKISTAN 68
UKRAINE 62
RUSSIA 58
BULGARIA 44
ROMANIA 41
MEXICO 39
POLAND 29
ESTONIA 24
GREECE 15
COSTA RICA 12
*Source: S&P/DRI 1998
ITALY 10
SINGAPORE 6
UNITED STATES 5 % 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 %
100 %

7. Government Quality Impact of good government on investment and growth
Income per capita Growth Rate
% Investment share in GDP
20%
-1.5% 0% 1% 2%
1.5%
-0.5%
-1.0%
0.5%
15%
10%
High
Medium
Low
High
Medium
Low
Government Quality

8. The ‘Dividend’ of Good Governance
2,000
4,000
6,000
8,000
10,000
12,000
Weak
Average
Good
Regulatory Burden x
Development
Dividend
Per Capita Income and
Infant Mortality and Corruption 10 20 30 40 50 60 70 80 90
Weak
Average
Good
Control of Corruption x
Development
Dividend
Literacy and Rule of Law 25 50 75
100
Weak
Average
Good
Rule of Law x
Development
Dividend
Per Capita Income and
Voice and Accountability
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Weak
Average
Strong x
Development
Dividend
Note
: The bars depict the simple correlation between good governance and development outcomes. The line depicts the
predicted value when taking into account the causality effects (“Development Dividend”) from improved governance to better
development outcomes. For data and methodological details visit

9. Corruption & Bureaucratic Discretion Bureaucratic Discretion
High
Corruption
Low
Bureaucratic Discretion

10. Enterprises are Prepared to be Taxed for Better Government:
Share of Firms that would pay additional taxes to eliminate corruption,
crime and excessive regulations
Prepared to Pay Taxes to Alleviate:

12. Smaller Firms Are Hit Harder by Corruption in Russia and in Transition Economies
Bribes to secure public procurement bids
(% of contract value) % 6 4
% of contract value 2
Small
Medium
Large
Small
Medium
Large

13. Extent of State Capture in Transition

14. Differences in Transition Countries on the Extent of State Capture50 % 45 % 40 % 35 % 30 %
%of all Firms report negative impact of grand corruption 25 % 20 % 15 % 10 % % 5
Hungary
Estonia
Russia
Azerbaijan
Adverse Impact of ‘Purchases’ of:
Parliamentary legislation
Decrees
Central Bank Influence

15. Enormous Socio-Economic Costs of State Capture by Oligarchs and Vested Elite Interests: Business sector grows much slower, lacks investments and insecure property rights

16. The result: weak property rights
Firms reporting insecure property and contract rights % 80 70 60 50
% of All Firms 40 30 20 10
Lit
Est
Uzb
Pol
Sln
Hun
Azer
Cro
Slk
Geo
Bul
Arm
Bel
Rom
Cze
Kaz
Kyr
Rus
Ukr
Mol

17. State Capture exists where partial Civil Liberties and slow Economic Reforms
Degree of Civil Liberties in Transition Economies

18. Civil Liberties Help Control Corruption (Worldwide Evidence, 150 countries)
High
Corruption
Low
Civil Liberties

19. Control of Corruption and Freedom of the Press
High
Control of Graft [kkz]
r = .68
Low
Low
High
Freedom of the Press (Freedom House)

21. Strategy for Good Government and Anticorruption
Accountability of Political Leadership:
Disclosure of parliamentary votes
Transparency in party financing
Asset Declaration, Conflict of Interest Rules
Checks and Balances:
Independent and effective judiciary
Decentralization with accountability
Good and Clean
Government
Civil Society Oversight:
Freedom of information
Public hearings of draft laws
Monitoring by media/NGO’s
Competition & Entry :
Competitive restructuring
of monopolies
Regulatory simplification
Public Administration and Public Finance:
Meritocratic civil service
Transparent, monetized, adequate remuneration
Accountability in expenditures (Treasury, Audit, Procurement) 1

22. Emerging Operational Strategies
Albania
Judicial reform
Tax and customs
Standards for health care
University entrants
Monitoring by NGOs
Georgia
Regulatory reform
Tax and customs
Public procurement
Fiscal management
Replacing Judges
Monitoring by NGOs

23. Overall Corruption Over Time
(Selected Countries; ICRG index, rescaled 0-10) 10
High corruption
Indonesia
El Salvador 8
Russia
Indonesia 6
Russia 4
Firm’s Senior Management Time Spent with Officials
Do the bribes paid by firms make life easier for them? Not necessarily; as it turns out, firms that pay more bribes end up spending more (not less) time with bureaucrats. In Russia, various estimates suggest that senior managers/owners of SMEs end up spending between percent of their time negotiating with officials.
Excessive control by officials over enterprise translates into excessive regulations, inordinate amounts of time spent by the enterprise’s owner with bureaucrats, and bribery.
Our evidence suggests a very close association throughout the world between the extent of bribery and (higher) senior management time wasted with officials on licenses, as well as a close association between bribery and higher cost of investing and cost of capital for firms.
Thus, we find no empirical support for the traditional “grease” argument, which suggested that petty bribery can help oil the squeaky wheels of commerce in developing countries. To the contrary, the business community ends up losing by bribing.
El Salvador
Poland 2
Poland
Low corruption
Finland
Finland
1992
1993
1994
1995
1996
1997
1998

24. A simple Formula synthesizing Governance/Anticorruption:
National Governance: Challenges in Integrating Anti-Corruption Into a Strategy of Institutional Change
A simple Formula synthesizing Governance/Anticorruption:
IG and AC = KI + LE + CA
Improving Governance and Anti-Corruption =
= Knowledge/Info.Data …
Leadership (incl. Political)
Collective Action (change)