Corruption in India

The department has more news to share. Nabamita Dutta's research was recently cited in the Wall Street Journal online. She was also interviewed by the BBC!

There have been a few attempts recently by economists to quantify the link between corruption and the informal economy. As my example illustrates, the direction of causality can run in either direction. In other words, the existence of corruption could drive people into the informal sector, but likewise the existence of an informal sector can itself give rise to corruption. Is it possible to disentangle these effects?

The most promising recent attempt is a study by economists Nabamita Dutta, Saibal Kar and Sanjukta Roy. They combine data on corruption from Transparency International with official Government of India data on employment in the informal sector, which in turn is culled from 2004/05 National Sample Survey and the 2001 Census.

The statistical results in the study confirm the intuition that, other things equal, more corruption leads to a larger informal sector. They also perform statistical tests to rule out what economists call “reverse causality” – the possibility that it’s a larger informal sector that’s causing more corruption.