How corruption affects productivity

While there is strong support for corruption reducing investment, there exists only scant empirical evidence for the likely adverse impact on productivity. This study measures productivity by the ratio of GDP to the capital stock, the latter being determined by a perpetual inventory method. A reduction of Tanzania's level of corruption to that of the United Kingdom would increase productivity by 10 percent, leading to a 20 percent increase in GDP. Decomposing this impact reveals that bureaucratic quality is the crucial determinant, but a country's tradition of law and order is irrelevant for productivity.