Corruption, economic growth and relative size of such leakages under UPA

Two theories are prevalent regarding the relationship between corruption and economic growth

    a. Grease the wheels' hypothesis: Corruption increases growth because it allows firms to circumvent inefficient regulations

    b. Sand the wheels' hypothesis: Corruption decreases growth because it prevents efficient production and innovation

Empirical evidence from Mauro-1995, Mo-2001, Aidt et al.-2008, Meon and Sekkat-2005, Hodge et al-2011, Swaleheen-2011, D'Agostino et al-2016, Huang-2016, Tsanana et al-2016, Chang and Hao-2017, Cieslik and Goczek-2018 support the sand the wheels' hypothesis, especially in countries with low investment levels and lower governance

Grundler and Potrafke-2019 found that many empirical studies examining the determinants and economic and political consequences on growth used Transparency International's Corruption Perception Index (CPI). However, those studies failed to consider the fact that before 2012 this index was incomparable over time and across countries because they included data for different components and time periods to measure perceived corruption level. Furthermore, there's the possibility of reverse causality, that is, growth may effect corruption levels as well. In addition, omitted cofounding factors might influence results as well.

This study used the new CPI for 175 countries over 2012-18 and found that the cumulative long-run effect of corruption on growth is negative. In the long run, increment in reverse CPI by one standard deviation reduced real GDP per capita by around 17%.  Corruption was also found to affect foreign direct investment and inflation. To deal with the endogeneity issue, the study used spatial dependence (jack-knifed regional average of corruption) as IV and found a negative relationship between corruption and economic growth.

Mauro-1997, listed possible causes and consequences of corruption derived from review of recent empirical studies which use cross-country regressions to determine the strength of the links between corruption, its causes and consequences. The study also presented evidence on the extent to which corruption affects investment, growth and government spending.

It found that if the corruption index improves by 1 SD, investment rate increases by over 0.5 percentage point, government spending on education increases by 0.5% of GDP. Transfer payments were found to be negatively and significantly associated with the corruption index. No significant evidence was found to support high corruption and high capital expenditure on "white-elephants" projects. This study, however, did not solve the direction of causality. 

So, we have been waiting for the good times as have been put forward under the election speeches of the NDA government. However, before we start to blame why magic hasn’t happened, and from refraining ourselves from recency bias, let’s look at how much money was leaked out of India during the UPA’s regime in the form of major established scams. Note that these are the big scams and there could have been more at relatively smaller scales which are not discussed here or are not in the public domain still.

So, after knowing the size of these corruption leakages, we should then contrast it with the infusions into the economy through ministries, schemes etc or other relative factors to properly understand the size of these scams. This would allow us to give us an idea at a preliminary stage about why present efforts might have still been in-sufficient to heal the economy.

The different scams have been adjusted for inflation and brought at 2019 prices using the CPI index and then the comparison has been made with different expenditures in the economy for 2019-20. This would give us an idea of relative size.

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