There is increasing recognition that corruption has substantial, adverse effects on economic growth. But if the costs of corruption are so high, why don’t countries strive to improve their institutions and root out corruption? Why do many countries appear to be stuck in a vicious circle of widespread corruption and low economic growth, often accompanied by ever-changing governments through revolutions and coups? A possible explanation is that when corruption is widespread, individuals do not have incentives to fight it even if everybody would be better off without it. Two models involving strategic complementarities and multiple equilibria attempt to illustrate this formally.
International Monetary Fund. External Relations Dept.
The Group of Seven Finance Ministers and Central Bank Governors met in Canada on February 8–9 to discuss the global economy, the importance of fostering development, and ongoing efforts to combat the financing of terrorism. The Managing Director of the IMF participated in the meeting.