Introduction

Since corruption does not allow for legal recourse, corrupt contracts are not legally enforceable. This is why corruption can go hand in hand with opportunism, reneging, and threats of denunciation (della Porta and Vanucci 1999; Husted 1994; Lambsdorff 2002a; Rose-Ackerman 1999: 91–110; Chapter 6 of this book). Corrupt deals can thus go along with low predictability for investors and the absence of confidence regarding mutual promises. There has lately been empirical support that this lack of confidence deters investors.

An important index for the predictability and confidence of corruption was published by the WB/UB in 1997 for a cross section of countries. This data has been fruitfully employed in research. The World Bank (1997: 103, 172) argues that for a given level of corruption in a sample of thirty-nine industrial and developing countries, countries in which corruption functions more predictably have higher investment rates. This approach has been extended and further elaborated by Campos et al. (1999), who make use of the same data by the WB/UB in a cross section of fifty-nine countries. Controlling for GDP per head and secondary school enrollment, the authors find that both low predictability and the overall level of corruption reduce the ratio of investment to GDP. The authors conclude that the type of corruption, apart from its level, is crucial to its economic effects.