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Paper long abstract:

Research question: This paper draws on available corruption measures and previous econometric research to estimate the reduced economic growth due to the unusually high levels of corruption in the C.I.S. How much does corruption cost in terms of economic growth? The question is consequential because the answer is relevant to the priority given anti-corruption campaigns. The answer is also not a priori obvious given the success of Asia's tigers such as South Korea, well known for high corruption.

Methodology: This descriptive study offers two alternative estimates of reduced growth. First, it applies the parameters previously estimated by cross-national panel regressions - in particular a recent study covering over 15 years and 91 countries, including all the C.I.S. nations. A shortcoming of this estimate is that the corruption index is based on standardized questions asked in interviews of businesses and misses the large-scale dealings of elite Oligarchs.

A second estimate adds up separate calculations for the different pathways by which corruption reduces economic growth - petty corruption's effects on households and small business, and large-scale corruption's impact on private domestic investment, foreign investment, public infrastructure and public education. Given data requirements only the Russian Federation is included. Capital transferred out of Russia, often by shadowy means, is lost to domestic investment and government revenue. Nominal tax rates and parameters estimated in published research yield the consequences for growth.

Results:Applying regression results to C.I.S. long-term growth we find little impact for nations with mid-range scores (Armenia, Belarus, Moldova and Ukraine), but low-income Central Asia pays a heavy (and most likely underestimated) price for its weak institutions. The Russian Federation's projected loss is 12% of 2017 per capita income.

Household surveys find substantial petty bribes reported by households and small business but since they offset inadequate state salaries, their aggregate drag on the economy is not large. Public and private investment lost to overseas capital flight depends on different estimates ranging from $27 billion to $150 billion annually.

Conclusion: The disaggregated analysis finds higher lost Russian growth than the applied regression estimates. But some of the capital flight to low-tax havens is legal and employed by wealthy elites the world over. The problem is thus not only criminality but weak property rights stemming from a corrupt and politicized court system. Emphasizing other reforms to institutions and economic policy may have greater rewards for economic growth.