Corruption undermines productivity growth. Fundamentally, these negative effects of corruption on productivity operate through the corruptly biased decisions in both the public and the private sector over the use of resources. More specifically, this paper argues that corruption affects three key determinants of productivity growth: innovation and diffusion of new technologies, an enabling market environment, and resource allocation. The available evidence suggests that investing into the mitigation of corruption risks through reforms of the public integrity system contributes to offset these negative effects of corruption and ensures a country’s path towards sustainable and inclusive development. In particular, governments can strengthen their public integrity systems by reducing the scope for corrupt practices initiated by public officials, e.g. the extortion of bribes to obtain licences or permits, by mitigating corruption in public procurement, by ensuring meritocratic hiring processes in order to avoid favouritism and nepotism, by averting policy capture by narrow interest groups through adequate levels of transparency and stakeholder engagement, managing conflicts of interest situations, and instilling transparency in lobbying activities and political finance, as well as by providing guidance to public officials, e.g. through clear codes of conduct and guidance.
