2.1. The Meanings and Theories on Corruption
2.1.1. Definitions and Concepts of Corruption
Different authors use the word corruption in different contexts, expressing different meanings. Etymologically, the word corrupt is derived from the Latin word “corruptus also spelled “corruptio” which means “moral decay, wicked behavior, putridity or rottenness” or in short it refers to “to abuse or to destroy”(Milic, 2001, as cited in Gashaw et al, 2015).
The term ‘corruption’ refers to the misuse of resources or power for private gain. Corruption is one of the greatest challenges of the contemporary world and exists in varying degrees in different countries. Corruption can be exercised in every sectors and have many negative consequences (Transparency International, 2012).
As mentioned by Wolfe and Gurgen (2000, as cited in Okekeocha, 2013) the International Monitory Fund(IMF) defined corruption as “abuse of authority or trust for private benefit and is a temptation indulged in not only by public officials but also by those in positions of trust or authority in private enterprises or non-profit organizations.”
As the study of Obayelu (2007) revealed World Bank (WB), defined as corruption is the abuse of public office for personal gain. Similarly, Transparency International (2012) defined as ‘Corruption is the abuse of entrusted power for private gain.’ As one of the oldest and most perplexing phenomenon in human society, political corruption exist in every country in the contemporary world and it is not exclusively a problem of developing countries.
Also as Transparency International, as cited by Gashaw et al., 2015), any activity that constitutes an abuse of the delegated powers in order to achieve personal gain is corruption. Similarly corruption can be defined as “the behavior of deviation from regular performance of public service for personal or other benefit; it is a violation of norms in order to achieve personal interest’’ (OSI, 2002, as cited in Tatjana and Natasa, 2013).
Corruption is behavior which deviates from the normal duties of a public role because of private regarding (family, close private clique), pecuniary or status gains, or violates rules against the exercise of certain types of private-regarding influence which includes such behaviors as bribery (use of reward to pervert the judgment of a person in a position of trust); nepotism (bestowal of patronage by reasons of relationship rather than merit); and misappropriation (illegal appropriation of public resources for private-regarding use)” (ibid).
Corruption is also the use of power for profit, preferment, or prestige, or for the benefit of a group or class, in a way that constitutes a breach of law or of standards of high moral conduct’ (Julius et.al, 1964, as cited in Edward, 2016). The same author also explained as it possesses the disadvantage of the emotionalism ordinarily attached to the term. ‘A right thinking’ person would agree that corruption denotes the affection of traditional values thus moral decay and the disintegrations of standards of proper behavior.
Even if, there have been a number of different attempts at defining corruption, there is no precise definition that can be applies to all forms, types and degrees of corruption, or which would be acceptable universally. According to Oxford English Dictionary, corruption defined as the dishonest or illegal behavior, especially of people in authority. It is also the act or effect of making somebody change from moral to immoral standards of behavior.
These all fundamental general notions of corruption are practically define corruption as dysfunctional. For it is seen as destructive of a particular political order, be it monarchy, dictatorship, or constitutionally limited popular rule, and thus it can attack any function within a political order.
Now a day, corruption is increasingly viewed as a significant impediment to economic development and growth. It hinder the development (social, economic, political and cultural development) process of one’s country and highly contributed for underdevelopment and poverty (Zahamani, 2016).
2.1.2. Theoretical Frameworks on Corruption
There are different theories and perceptions regarding to corruption. Some of these theories and perceptions are including;
A. Modernization Theory: According to Huntington(1968) and Adefulu(2007, cited in Iyanda, 2012) modernization theory observed as the process of economic and political development in modernizing societies tends to breed inequality, political instability and corruption which may be defined simply in terms of the use of public powers to achieve private goals.
B. Principal-Agent Theory: Another theory of corruption is Principal-agent theory, which suggests that public sector corruption is the result of a corrupt transaction between three individuals: the principal (either the governing entity or, in some models, the state’s citizenry as a whole); the agent (a corruptible individual whose work and duty is in the service of the principal); and a third party (the corrupter). The agent is expected to act on behalf of the principal and to advance their interests; however, the agent and the principal may in reality be pursuing different, even antagonistic goals, given the asymmetric access to information between them(European Union,2011).
C. Collective Action Approaches: From a collective action perspective, all stakeholders including rulers, bureaucrats and citizens are equally self-maxi misers, and the way they behave to maximize their interests is highly dependent on shared expectations about the behavior of others (Ostrom, 1998, as cited in UKaid, 2015).
2.2. Types of Corruption
According to European Union (2011), there are different types of corruption. The typologies of corruption include Grand corruption, petty corruptions and systematic corruption. All thus types of corruption occur all over the world regardless of differences in levels of economic and social development. Corruption is the abuse of entrusted power for private gain. It can be classified as grand, petty and political, depending on the amounts of money lost and the sector where it occurs (TI, 2018).
2.2.1. Grand corruption
Grand corruption consists of acts committed at a high level of government that distort policies or the central functioning of the state, enabling leaders to benefit at the expense of the public good. Grand corruption is a high level corruption that takes place at the police at the policy formulation end of politics. The kind of transactions that attract grand corruption are usually large in scale. (TI, 2018).
According to Moody-Stuart (1996) and Collier (1999, as cited in Selamawit, 2015), grand corruption is high level government (political) corruption that unlike petty corruption takes place by greed motives. It is practiced by those public officials who have power to decide on significant economic and political issues. It involves senior agency officials, military and police commanders, senior judges, legislators, cabinet ministers, and even heads of government and state.
Grand corruption is the misuse of public power by heads of state, ministers and top officials for private, pecuniary profit. As its name indicates, Corruption, here, is grand and it involves profit at grand scale. Therefore, although it is possible to generate large amount of profit locally, it will be advantageous for corrupt politicians to be paid offshore in foreign currency (ibid).
2.2.2. Petty Corruption
Petty corruption refers to everyday abuse of entrusted power by low- and mid-level public officials in their interactions with ordinary citizens, who often are trying to access basic goods or services in places like hospitals, schools, police departments and other agencies (TI, 2018).
It is a type of corruption practiced by those who simply execute government policies and are under paid civil servants who depend on small 'contributions' from the public. Petty corruption takes place in the process of service delivery in offices, hospitals, schools, local licensing bureaus, police, tax offices, etc. Petty corruption has also been called 'low level' and 'street level' corruption or 'bureaucratic corruption'. It involves mid-and lower-level officials such as agency bureaucrats, immigration officials, customs clerks, police officers and etc. (Collier, 1999) and (Amundsen, 1999, as cited by Selamawit, 2015).
In addition to that petty corruption is describes as ‘survival corruption’, a form of corruption which is pursued by underpaid agents who depend on extra payments to feed and house their families. Bureaucratic, administrative or petty corruption involves sums of money, the amounts are not ‘petty’ for the individual adversely affected. Petty corruption changes the low income members of society who may experience bribes regularly in their encounters with public administration and services such as police, hospitals etc. (ibid).
2.2.3. Political corruption
Political corruption is a manipulation of policies, institutions and rules of procedure in the allocation of resources and financing by political decision makers, who abuse their position to sustain their power, status and wealth. Political corruption is in some instances used synonymously with grand and high level corruption, referring to misuse of entrusted power by political leaders. In others it refers specifically to corruption within the political and electoral processes (TI, 2018).
2.2.4. Systematic Corruption
Systematic corruption is a primary committed due to weakness of an organization or process. Factors which encourage systematic corruption are conflict incentive, discretionary power and lack of transparency, etc. Systematic corruption is when corruption is an integrated and essential aspect of the economic, social and political system, when it is embedded in a wider situation that helps sustain it. Systematic corruption is not a special category of corrupt practice, but rather a situation in which the major institutions and process of the state are routinely dominated and used by corrupt individuals and groups, and in which most people have no alternatives to dealing with corrupt officials.
Generally, this type of corruption is a situation where corruption dominates the major processes and institutions of the state. Corruption becomes an essential and integrated aspect of the society. Administrative corruption includes bribery and favoritism to allow businesses to pay lower taxes or to give access to low-level procurement contracts.
2.3. Forms of Corruption
Since, there is no universally accepted definition of corruption, there is no universally valid typology of corruption. Since researchers on corruption have elaborated multiple classifications, Corruption takes many forms.
According to United Nation (1990, as cited by Selamawit, 2015), forms of corruption include acceptance of money and other rewards for awarding contracts, violation of procedures to advance personal interests, kickbacks from developmental Programs or multi-national corporations, pay offs for legislative support, diversion of public resources for private use, overlooking illegal activities, intervening in the justice process, nepotism, common theft, overpricing, establishing non-existing projects and tax collection and tax assessment frauds.
Corruption may have many forms. According to many scholars the main forms of corruption are including bribery, embezzlement, fraud, extortion, favoritism, collusion and etc.
2.3.1. Bribery
It is the act of dishonestly persuading someone to act in one’s favor by a payment or other inducement. Inducements can take the form of gifts, loans, fees, rewards or other advantages (taxes, services, donations, etc.). The use of bribes can lead to collusion (e.g. inspectors’ under reporting offences in exchange for bribes) and/or extortion (e.g. bribes extracted against the threat of over reporting). To pay or receive bribery should be understood as the essence of both extractive and redistributive corruption. The bribery is the payment (in money or kind) given to or taken by the state official in a corrupt relationship (UKaid, 2015).
According to Shimelis (2005), there are many equivalent terms to bribery, like kickbacks, baksheesh, sweeteners, grease money and pay offs, which are all notions of corruption seen from below, as “redistributive” corruption. These are all payments needed or required to make things pass swifter, smoother or more favorably through a bureaucracy, or to avoid some burden.
2.3.2. Embezzlement
Embezzlement is theft of public resources by public officials, and as such it is understood as another form of misappropriation of public funds. The state official steals from the public institution in which he/she is employed and from resources he/she is supposed to administer on behalf of the state and the public. However, disloyal employees in private forms can also embezzle their employers and firms, and several kinds of resources may be embezzled. Embezzlement is not considered as corruption from a strict legal point of view (Amundsen, 1999, as cited in Selamawit, 2015).
In legal terms, corruption is a transaction between two individuals, one state agent and one “civilian” agent, where the state agent goes beyond the limits of the law and regulations in order to secure his personal benefit in the form of a bribe. Embezzlement is therefore regarded as theft, because it does not involve the “civilian” side directly (Amundsen, 1999, as cited in Selamawit, 2015).
According UKaid (2015), Embezzlement is to steal, misdirect or misappropriate funds or assets placed in one’s trust or under one’s control. From a legal point of view, embezzlement need not necessarily be or involve corruption.
Amundsen (1999, as cited in Selamawit, 2015) argued that embezzlement can be extended to massive extraction of public property by power holders that systematically exploit their political office for their own private business interest and that of the members of the ruling families. The process of 'privatization' is one of the facilitating factors for embezzlement.
2.3.3. Fraud
Fraud is a crime that involves some kind of trickery, swindle or deceit, and it is a broader legal and popular term that covers both bribery and embezzlement. It is fraud when for instance state agencies and state representatives are engaged in the black and grey (informal) markets, and when networks of forgery, trade in illegal goods and smuggling are propped up by official sanction and involvement. While serious fraud is generally treated as cases of individual enrichment, fraud can also be “collective”. Fraud is the swindle and deceit used by the ruling group to make more benefits for the rulers, and as such the concept includes what has been labeled extractive corruption (Shimelis, 2005).
2.3.4. Extortion
This is a form of corruption as extraction of money or other resources either from the society to the state or from the state to the society as a form of either 'redistributive' extraction 'from below’ or 'from above' through the use of coercion, violence or the threats to use force. Corruption as extraction from below is said to occur when individuals or firms compel individual state officials and state agencies for preferential business opportunities, privileges, and exemption from taxation, regulations, and legal prosecution. Therefore, for it is the powerful that can influence policies through pressure and bribes, the ultimate cost of redistributive corruption is shouldered by the poor. Who, in society, will benefit the most from this kind of corruption depends on the local distribution of forces (Amundsen, 1999, as cited in Selamawit, 2015).
It might be foreign or local corporate interests that are able to buy underpriced national resources, concessions, preferential treatments, permissions, and tax exemptions. It might be the general population, individuals who are able to buy benefits like tax exemption, subsidies, pensions, or unemployment insurance, or get preferential access to privileged schools, medical care, housing real estate or ownerships takes in enterprises being privatized (ibid).
According to the Oxford English Dictionary, Extortion is defined as “the act or practice of extorting (defined as either to wrest or wring from a person, extract by torture or to obtain from a reluctant person by violence, torture, intimidation, or abuse of legal or official authority, or in a weaker sense by importing, overwhelming arguments or any powerful influence) or wresting especially money, from a person by force on by undue exercise of authority or power."(Frunzik, 2000).
Amundsen (1999, as cited in Selamawit, 2015) further elaborated more based on the above, corruption is similar, when the state itself and in particular its security services and paramilitary groups extort money from individuals and groups to protect them from ‘harassment'. Rulers can also extract resources from private sector businesses with concealed threats by imposing strict taxation, overtly delayed licenses, repeated and brutal police inspections or other measures.
2.3.5. Favoritism
This is a form of corruption in which state resource, are distributed in a highly biased manner. It is a way through which state officials grant offices or some kind of benefits to their friends, relatives, and, in most societies, to family, clan, and tribe, ethnic, religious or regional group regardless of merit by abusing their public power. "Favoritism is the penchant of state officials and politicians, who have access to state resources and the power to decide upon the distribution of these, to give preferential treatment to certain people when distributing resources"(Amundsen, 1999, as cited in Selamawit, 2015 ).
Favoritism is quite simply the normal human proclivity to favor friends, family and anybody close and trusted. In the political sphere, favoritism is the penchant of state officials and politicians, who have access to state resources and the power to decide upon the distribution of these, to give preferential treatment to certain people when distributing resources. Client list favoritism is a basic characteristic of the neo patrimonial societies, but in most societies it is a rather everyday proclivity to favor one’s kinship members (family, clan, and tribe, ethnic, religious or regional group) (ibid).
According to Amundsen (1999, as cited in Selamawit, 2015) favoritism has two forms. The first is nepotism. Nepotism is a special form of favoritism in which an office holder (ruler) prefers his/her proper kinfolk and family members. The other kind of favoritism includes when certain people are commissioned to buy privatized public property cheaply, get state guaranteed or subvention loans, selected as contractors for public works, and given privileges through selected economic policies.
The author also explained problem of favoritism as it is very serious, because it is not only a legal and procedural case but also political as well. Favoritism creates partiality and discrimination among citizens, families, clans, regions or social sub groups and hence the repercussion is very serious. Besides, favoritism is against merit, and seriously affects efficiency and effectiveness and hence, economic development.
2.3.6. Collusion
It is an arrangement between two or more parties designed to achieve an improper purpose, including influencing improperly the actions of another party (UKaid, 2015).
2.4. Methods of Measuring Corruption
While, there is no direct ways of measuring corruption there are several indirect ways of getting about its prevalence in a country or institutions. Both International Monitory Fund (1998) and Transparence International (2012) elaborated the following methods or mechanisms that different international organizations such as transparency international, world economic forum and the world bank are using to measure corruption. These are including corruption perceptions index, worldwide governance indicators, global competitiveness report, global corruption barometer, bribe payers index, and control of corruption index.
A) Corruption Perceptions Index (used by Transparency International), Corruption Perceptions Index (CPI) is also called “poll of polls;” it combines the findings of several surveys and assessments carried out by multiple organizations in individual countries. The surveys focus on issues such as kickbacks in public procurement, bribing public officials or embezzlement of funds by public officials. Countries are ranked based on scores on a scale from 1 to 10, where 10 stand for the lowest
Also according to, 2015 Corruption Perceptions Index clearly shows that corruption remains a blight around the world. The report also opined 2015 was a year where people again took to the streets to protest corruption. People across the globe sent a strong signal to those in power: it is time to tackle grand corruption.
B) Worldwide Governance Indicators: (used by World Bank) Reports aggregate and individual governance indicators for 212 countries and territories over the period 1996-2008, for six dimensions of governance such as voice and accountability, absence of violence/ political stability, government effectiveness, regulatory quality, rule of law, and control of The aggregate indicators combine the views of a large number of enterprise, citizen and expert survey respondents in industrial and developing countries. The individual data sources underlying the aggregate
Indicators are drawn from a diverse variety of survey institutes, think tanks, non-governmental organizations, and international organizations. So the WGI is the database of aggregate indicators of good governance compiled by the World Bank from multiple surveys as well as from individual indicators drawn from experts and countries earns a percentile score for each of them.
C) Global Competitiveness Report: The World Economic Forum (WEF) used Global Competitiveness Report (GCR) to measure corruption. Its goal is to rank countries based on their competitiveness, corruption is measured as one of the indicators of a competitive business environment. Global Competitive Report data on corruption are collected from firms around the world (for the report published in 2015 on average 98 firms per country) with an Expert Opinion Survey, carried out by the World Economic Forum annually. In the survey, firms are asked about their opinion on the extent of bribery, costs of corruption or diversion of funds in their country, rating their country on a scale from 1 to 7. The resulting score is an average of those given.
D) Global Corruption Barometer (GCB): The GCB is a large survey to collect general public attitudes toward, and experience of corruption in countries around the world. The GCB explores general public views about corruption levels in the country and the efforts of their governments in anti-corruption One of the findings of GCB 2010 was that political parties are identified as the most corruption institutions around the world, where 1 stands for “not at all corrupt” and 5 stands for “extremely corrupt (TI, 2010).”
E) Bribe Payers Index (BPI): The BPI evaluates the supply side of corruption the likelihood of firms from the world’s industrialized countries to bribe abroad. These countries account for approximately 75 % of total foreign direct investment outflows and export goods worldwide. The index is based on interviews with senior business executives (used by TI, 2010).
In the parallel to these global indices and surveys, TI national chapters in Africa and the middle East, the Americas, Asia and pacific and Europe and central Asia have engaged in a number of efforts to measure corruption, transparency and governance often combining objective and subjective data in their analyses(used by TI, 2010).
F) Control of Corruption Index (CCI): The world banks CCI focuses on the importance of the role of good governance and the anti-corruption aspirations as a means of supporting their poverty alleviation mission. The CCI is also considered both reliable and valid showing a 0.97 correlation with the CPI. Such a high correlation indicates that the proposition of the CCI essentially coincides with what the CPI is suggesting (used by World Bank, 2012).
2.5. The Causes of Corruption in Ethiopia
As mentioned by Gashaw et al. (2015), corruption is a global phenomenon which occurs everywhere and experienced by all societies at varying times. It is not peculiar to any continent, country, ethnic group, faith, political system or gender. Even though corruption is found almost everywhere, it is stubbornly entrenched in the poor countries of Sub-Saharan Africa, Latin America, newly industrialized countries, and in several of the post-communist countries. Corruption has been the main factors that hinder development and exacerbate poverty in Africa and this case, Ethiopia is not exceptional rather corruption is rampant.
Ethiopia has the challenges of good governance. The causes of corruption are not different from that experienced in other African countries. As FEACC (2008,p5) stated that poor governance, lack of accountability and transparency, low level of democratic culture and tradition, lack of citizens participation, lack of clear regulations and authorization, low level of institutional control, extreme poverty and inequality, centralization of authority and resources are the major causes of corruption in Ethiopia. Family and ethnic loyalties and obligations, blurred distinction between private and public interests, privatization, weak financial management, inadequate accounting and auditing, weak legal and judicial system, over regulated bureaucracy, deterioration of acceptable moral and ethical values, unsound policies and inefficient civil service system and others also a primary causes of corruption in Ethiopia.
Alemayehu (2005) has also stated that traditional values of loyalty and honesty are giving way for breaches of trust and dishonesty, thereby contributing to the growing trend in corruption. For some public officials, the traditional proverb which says ‘whoever has not benefited from his position while in power, will regret when expelled’ seems to dictate their work ethic. Moreover, weak oversight agencies, mainly due to lack of capacity in investigating and preventing corrupt practices and enforcing relevant laws(e.g. conducting regular audits and inspections) have contributed to emerging trends in corrupt practices(TI, 2009).
Today, the establishment of the Federal Ethics and Anti-Corruption (FEACC) was one of the measures taken by the ruling party. Federal Ethics Anti-Corruption Commission is established by Proclamation No 235/2001 with four interrelated objectives;
• Creating an aware society where corruption will not be condoned or tolerated by promoting ethics and anti-corruption education,
• Preventing corruption offences and other improprieties,
• Creating and promoting integrity in public service by detecting investigating and prosecuting alleged or suspected cases of corruption offences, and
• Preparing and following up the implementation of codes of ethics for public officials and public servants.
Moreover, the author further explained that the Revised FEACC Establishment Proclamation (Proclamation No 433/2005) reduced objectives of the Commission into three. The objectives of the revised proclamation are: ‘in-cooperation with relevant bodies’ to strive to create an aware society where corruption will not be condoned or tolerated by promoting ethics and anti-corruption education, ‘in cooperation with relevant bodies’ to prevent corruption offences and other improprieties and ‘to expose, investigate and prosecute corruption offences and impropriety.’
However, the establishment of these all rules directive and corruption commission does not in itself eradicate the source of corruption in Ethiopia, because the corruption is already wide spread Corruption of State Capture in Ethiopia: State capture refers to “a situation where powerful individuals, institutions, companies or groups within or outside a country use corruption to shape a nation’s policies, legal environment and economy to benefit their own private interests” (TI, 2009).
Accordingly, in 2009, Ethiopia was scored 27 and ranked 120th out of the 180 assessed countries in Transparency Corruption Perceptions Index (CPI), suggesting widespread and endemic corruption. In 2012, Ethiopia was ranked 113th out of 176 assessed countries and scored 33. In 2013, Ethiopia was ranked 111th out of 177 countries in Transparency Internationals 2013 Corruption Perceptions Index, with a score of 33 out of an achievable 100. On the 2013 Ibrahim Index of African Governance, Ethiopia scores 47.9 % lower than the continental average 51.6%.
According to Ibrahim Index of African Governance (IIAG), Ethiopia was ranked 32 next to Liberia and scored 48.5 in 2014.
Even if Ethiopia’s political institutions have been much criticized by experts, who argue that there is virtually no system of checks and balances between the different branches of government and that elections are neither free nor fair (Bertelsmann Foundation,2014, as cited in TI, 2014).
2.6. The Impacts of Corruption on Socio-Economic Development
Impacts of Corruption on Social: In social sphere, corruption discourages people to work together for the common good. Demanding and paying bribes becomes the tradition. It also results in social inequality and widened the gap between the rich and poor. There is also unfair distribution of welfare and this highly deteriorate the culture of acceptance and legitimacy among the society (Gashaw, et al. 2015).
European Union (2011) also broadly explained that corruption can deprive the fundamental rights of the poorest individuals in various ways: firstly, it can hamper the right to benefit from basic and essential services; secondly, corruption undermines political accountability and thus constitutes a serious obstacle to the exercise of political rights; finally, corruption is a huge factor in discrimination of the poorest and most marginalized groups (including women and minorities).
The authors also suggested that, corruption is a detrimental to social cohesion by separating the rich from the poor and promoting rivalries and jealousies between ethnic groups and communities. It also fosters a climate of suspicion and mistrust, where individuals are rewarded for their selfishness and where collective action is perverted. Finally, it deepens the gap between the ruling elite and the citizenry, which undermines respect for authority and encourages impunity. Such conditions may ultimately force a country into a vicious cycle, where the social and cultural impacts of corruption generate social attitudes and institutional weaknesses that further entrench it in society. In general, as mentioned above, it can be recognized that corruption is a serious problem and badly threat to social life, social stability, democracy, human rights, morality and poverty reduction.
Impacts of Corruption on Economy: Economic indicators of development is like GDP, Life expectancy, Literacy and Level of employment. Economies that are affect by a high level of corruption which involves the misuse of power whether in the form of money or authority, in order to achieve certain goals in illegal, dishonest or unfair ways. Now a day, corruption is increasingly viewed as a significant impediment to economic development and growth. It hinders the economic development process of one’s country and highly contributed for underdevelopment and poverty. Corruption affects economic status by causing in low productivity and low economic growth, increased costs of goods and services, scarcity of public resources to finish different projects such as schools, hospitals and roads. Corruption affects construction of infrastructures not to construct on time, with standardized quality and quantity (Zahamani, 2016).
Tanzi and Davoodi (1997, as cited in Eatzaz, et al., 2012) mentioned that "corruption tends to be associated with higher public investment and high corruptions tends to reduce government revenue, which in its place reduces the resources available to finance spending, including public investment, high corruption also tends to be associated with poor quality of infrastructure, this reduce its contribution to output and also large scale corruption indeed has powerful effects on both the quality and the quantity of public investment.”
According to Frunzik (2000), corruption can effect on human capital formation, which is the most important input in the process of production and transformation that is called economic development in different ways. First, corruption weakens tax administration and can lead to tax evasion and improper tax exemptions. Second, corruption increase the operating cost of government and therefore reduces the resources available for other uses, including the financing of social spending that is crucial to the formation of human capital.
Corruption causes the poor disproportionately highly dependent on public service and least capable of paying extra costs associated with bribery, fraud and misappropriation of economic privileges. Corruption is also regressive in the sense that its costs and negative economic impact tend to fall more heavily on small enterprises and on individuals in a weak economic position (Action Professional Association for the People, 2001). Not only these, according to UKaid (2015) the increase of corruption reduces private enterprise investments, affects poverty alleviation programs negatively by distorting developmental decision making and Commercial investments and reduces long term investment rates.
Rahman et al. (2000, as cited in UKaid, 2015) consider the effects of corruption on investment to GDP ratios. They found that an increase in corruption by 1 standard deviation results in a reduction in the total investment ratio by 2.4 percentage points.
The same authors also elaborated that corruption has powerful negative effects on foreign investment by destroying investors’ confidence. Just as domestic investors are likely to make decisions about production and investment affected by corrupt business environments, so importers, exporters and foreign investors are likely to amend their commercial calculations based on such factors.
Moreover, different research papers suggest that, corruption can affect income equality and affect the poor disproportionately. According IMF (2016), corruption is significantly associated with income inequality and poverty. The authors also elaborated that lower income households and businesses pay a higher proportion of their income in bribes than do middle or upper income households: as such, bribes are like a regressive tax, since they must allocate a greater amount of their income than the rich to bribes.
The economic and social costs of corruption are clear. Consider, for example, the effects of corruption on the public accounts. It robs the tax system not only of revenues, but of its very legitimacy. Corruption can also shift government spending away from valuable areas in health, education, and social protection, toward wasteful projects that enhance neither productive capacity nor human wellbeing (IMF, 2018).
The report of Razafindrakoto and Roubaud (2007) explained that the poor are more often subject to corrupt practices in the course of their routine interactions with public institutions. In the same manner Transparency International repeatedly shows that corruption hits the poor hardest. This widens the gap between the poor and the rich, which manifests the adverse relationship of corruption and development. Therefore, corruption is double jeopardy for the poor and the powerless.
Corrupted economies are just not able to function properly because corruption prevents the natural laws of the economy from functioning freely. According to the World Bank, the average income in countries with a high level of corruption is about a third of that of countries with a low level of corruption. Also, the infant mortality rate in such countries is1 about 3 times higher and the literacy rate is 25% lower.
Corruption in its many forms (bribery, nepotism, fraud, embezzlement) adversely impacts the economies and societies of affected nation. Corruption in the way deals are made, contracts are awarded, or economic operation is carried out leads to monopolies or oligopolies in the economy. Those business owners who can use their connections or money to bribe government officials can manipulate policies and market mechanism to ensure they are the sole provider of goods or services in the market (WB, 2012).
In general, as mentioned above, it can be recognized that corruption is a serious problem and badly threat to social and economic development, social stability, democracy, human rights, morality and poverty reduction. Then, it affects negatively the socio economic relation of the society by widening the gap between the rich and the poor and also highly affects socio-economic development.
2.7. The Role of Citizens to Combat of Corruption
Citizens have one of the crucial roles to play in fighting corruption in a given country. For combating corruption the role of civil society essential issues and important. Anti-corruption techniques and interventions over the years, the most successful anti-corruption efforts have commitment from political leaders as well as public support. Anti-corruption initiatives where civil society, in partnership with government and private sector actors, raises awareness and works not only to combat corruption, but to build integrity, have a higher success rate in terms of systematic designing out corruption. There is considerable global evidence on the active role civil society has played over the years in promoting participatory government and holding government to account. The impact of citizen participation on strengthening democracy, service delivery and empowerment is increasingly recognized (Spurk, 2010, as cited in B Jensen, 2016).
The responsible of citizen should play a role in fighting corruption by not operating with corrupted officials. The practice fighting corruption may begin in home, school, in any work place and any condition at the community level (Belete, 2000). Many scholars stated about the role of citizens to combating of corruption. Beside of the scholars, the author also stated that corruption is a serious problem that countries are suffering from and a setback to the development efforts of a notion. Thus, countries are fighting to do away with corruption. In the fight against corruption, both individuals and institutions must contribute.
The most important factor in the fight against corruption is the prevalence of the rule of law in everyday life. Individuals must be honest and truthful in their day to day activities in order to combat corruption. This means they should have respect for rules and regulations of the country and decide to fight corruption by every legal means. Through honesty and truthfulness, we can expose corrupt people and turn away from corrupt practices. The fight against corruption requires the Active and full participation of the public and unreserved commitment of, among others, each and every government institution. In keeping with the democratic constitution, government officers must make their activities transparent to the public. Moreover officials must be held accountable for any fault they commit. Transparence and accountability play a great role in combating corruption (TI, 2012).
2.8. Conceptual Frame Work on Corruption
Corruption reduces socio-economic development and reduces government capacity to respond the needs of peoples. So, this consequence maintains poverty. Corruption and poverty usually reinforce each other. Countries afflicted by structural poverty are likely to be suffering from systematic corruption because corruption is among the exacerbating conditions of poverty in countries already struggling with the strains of economic growth and democratic transition. Alternatively, countries experiencing chronic poverty could naturally serve as breeding grounds for systematic corruption due to persistent social and income inequalities and perverse economic incentives. Poor countries may not be able to devote sufficient resources to setting up and enforcing effective legal frameworks. Similarly, people in need are also more likely to abandon their moral principles (Mauro 1998, as cited in Shera.et al, 2014). Furthermore, corruption is likely to aggravate income inequality which is associated with slower economic growth. There are two models that are useful in understanding the impacts of corruption on poverty, the economic model and the governance model (Chetwynd, 2003). Both these models demonstrate that corruption does exacerbate and promote poverty, but this pattern is complex and moderated by economic and governance factors. Also corruption makes lower income households and businesses pay a higher proportion of their income in bribery’s than middle or upper income households. The burden of petty corruption falls disproportionately on poor people (World Bank, 2012).