Effect of corruption on educational quantity and quality: theory and evidence

Human capital development, through education and skill development, is instrumental for economic growth. And education and skills development require learning efforts. In the presence of corruption however, applicants have little incentive to learn as they can pass an exam or obtain a qualification by relying on bribery instead. In this paper, we present a simple model with corrupt and honest examiners, as well as applicants with heterogeneous innate ability. A key assumption is that effort and bribe are explicitly modelled as strategic substitutes. Our results show that “strong” candidates rely only upon effort; “medium” candidates choose positive levels of both bribe and effort, while “weak” candidates rely only on bribery. We also find that corruption may decrease education quality by lowering aggregate effort level, while increasing education quantity by increasing the aggregate chances of obtaining a degree. We explore these implications empirically and find support for the key predictions of the model.