Deconcentration, Corruption and Economic Growth

This paper highlights a channel through which decentralisation may curb the level of corruption and, in doing so, foster economic development. The analysis is based on a dynamic general equilibrium model in which corruption affects growth through entry regulation and the costs of doing business: for certain types of business to be undertaken, licenses are required from public officials who demand bribes in exchange for them. When entry regulation is centralised, each official issues his own designated type of license to all regions. When entry regulation is decentralised, each official issues all types of license to his own designated region. We show that the latter structure of government is associated with lower bribes, higher capital and higher growth.