My study of corruption applies an empirical test to the institutional theory developed by Andrei Shleifer and Robert Vishny (1993). The authors assume that a public agency official, when providing a bundle of governmental goods, acts as a monopolist which allows for three distinct forms of governmental organizations that generate three different institutional systems. The first system is based on a type of government that allows for direct competition among public agencies; the second system is based on either more centralized governments or governments that have strong monitoring (whether by separate internal monitoring departments or through the media) and enforcement mechanisms over its public officials; and, lastly, governments that do not have proper monitoring and enforcement mechanisms, leaving the public officials free to do what suits their interest. These systems would result in low, medium and high levels of corruption respectively and consequently the impact of corruption on economic growth would vary from positive/beneficial in the first system to negative/detrimental in the last system. After analyzing the impact of corruption on economic growth using the methodologies employed in the relevant literature. I found empirical support for both the "grease of the wheel" and "economic cancer" arguments in my analysis with a "grease of the wheel" corruption effect in the first system and an "economic cancer" corruption effect in the third.
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