This article was written as part of the course “Latin American Economic Development” offered by Professor Marla Ripoll, Department of Economic, University of Pittsburgh.
According to a 2017 IMF report, corruption in Latin America is one of the biggest hindrances
on the economy. Corruption can impede prospects for delivering sustainable and effective
growth. Many corruption cases go undocumented due to the fact that in many cases it is illegal
and very well hidden. This makes it difficult to obtain clear data for research. However, with
the cases that do become uncovered, and with the estimates that are proposed, many
economists have done research on its effects on the economy. The findings are clear:
systematic corruption impedes a developing economy from reaching potential development
There are many modes and manners of corruption. It can happen on a large scale, at top levels of government, where big names in politics use their political influence to abuse power for their own
benefit. There also exists corruption on smaller scales, such as petty corruption on bureaucratic levels.
In most cases, bribery is used. Bribery is one of the largest forms of corruption. A recent figure
estimated global bribery to be about $1.5 to $2 trillion dollars(1). According to Transparency
International, 53% of Latin Americans believe that their governments are failing to address
corruption(2). This mistrust creates a slippery slope and leads to adverse effects on the
economy. First and foremost, it discourages citizens to run for office and create a positive
change, because they believe that their efforts will be blocked. With this lack of trust in
governments, tax evasion efforts are heightened. People are also less likely to start their own
businesses; a report from the IMF asserts “measures of corruption tend to be highly correlated
with indicators that measure the ease of doing business, such as the number of days it takes to
start a business or the number of days needed to process imports.” Lastly, corruption hurts the
flows of foreign direct investment, which plays an important role in development. If investors feel
as though their investment will not be successful, then they are substantially less likely to invest
in a nation. “Corruption has been shown to reduce foreign direct investment, a strong promoter
of growth in recipient countries”, the IMF report asserts(1).
Perhaps the most evident and tangible effect of corruption in a nation is the inequality it
creates in the economy. Corruption benefits the elites of a nation and creates massive gaps
between classes. Bribery is the most common form of corruption, and can be simply the transfer of
large funds from one elite to another. This transfer of funds goes undocumented and untaxed.
The relationship between corruption and other variables has been studied. For instance, child
mortality rates are about one-third higher in countries with high corruption rates, and infant
mortality rates are almost twice as high. Education is also seemingly impacted, as high school dropout rates in high corruption countries are five times as high as low corruption countries. These
relationships are most likely linked to the inefficient allocation and funding of health care systems, education and social programs in countries. Although these relationships are conjectured with data from the countries
and cannot be confirmed positively, the numbers are striking.
Many Latin American countries suffer from corruption. Some recent issues of
corruption in Latin America include the Panama Papers, where almost 12 million classified
papers were leaked consisting of offshore accounts and illegal assets. Brazil has also grappled with
serious issues of corruption, illustrated by the scandals of Operation Car Wash with Petrobras and
Obredecht where officials were bribed to ensure contracts, and President Rousseff was
impeached for misallocation of funds. Although there are a lot of corruption cases occurring
within the past years, the fact that they are being uncovered and the guilty are being
brought to justice gives hope to the efforts to decrease corruption levels in the region.
Corruption is a problem in every country around the world. Its effects can be miniscule or
monumental. What is necessary to combat these issues of corruption are forceful policy
changes that allow for whistleblowers to bring issues to light without fear of retaliation and for
those guilty of corruption to be effectively brought to justice.