The Pareto Theory of Poverty-induced Corruption

Abstract

Economies were labelled as under-developed, developing and developed, but the first became a crude label and was dropped. We aim to justify a new third category- the disabled economy, caused by Pareto Economic Disability (PED); which holds when just one or two economic sectors account largely for the GDP but only a small portion of jobs. The absolute differential is the PED index; the higher it is, the higher is the poverty level. Driven by a conceptual model, the study argues that Pareto-induced poverty fuels corruption, and that the interaction effect results in economic disability. Expected relationships were justified using prior literature and the analysis of secondary data on GDP, jobs and per capita income collected from robust Internet sites. The study population are countries in the 2014 Corruption Perception study by Transparency International. The sample were the first twenty, the median twenty and the last twenty as well as Nigeria, being the thirty-first on the list. The results suggest that poverty eradication requires lowering the PED Index via socio-economic diversification, not political manoeuvring over anti-corruption. The finding that poverty causes corruption rather than the other way round is novel and would provoke significant research and governance interests.

Key words: Pareto, Economic disability, Empirical, Poverty, Corruption, Diversification.