Analysis of corruption and economic growth in African countries

This paper uses economic models which are deeply rooted in utility and profit maximization and growth theories to show the effects of corruption on households’ demand and consumption of goods and services, the production and costs of manufacturing firms, and the aggregate economy in African countries. From the straightforward application of the theories of utility maximization, production and costs, governments’ monopoly with respect to employment as well as the provision of many public goods and services, and economic growth, this paper argues and shows that corruption: (a) reduces households’ demand and consumption of goods and services, (b) increases the cost of production and decreases firms’ output, (c) causes the price level to be higher, and (d) reduces the capital-labor ratio as well as the level of savings per person and lower per-capita income in steady-state in many African countries. As the capital-labor ratio decreases due to pandemic corruption, per-capita income dissipates in the long-run thus explaining the underdevelopment trap that researchers and policy analysts observe in African countries today. Most importantly, this paper examines the impact of corruption at three different levels: households, firms, and governments in African countries because the Corruption Perception Index, which many researchers rely upon to gauge the level of corruption in many countries, does not tell us anything about how households and firms are affected by corruption. This paper therefore provides a partial explanation as to why African countries are farther away from the balanced growth path despite several policy recommendations from various international agencies such as the World Bank and the International Monetary Fund.