# **Summary**

This paper examines what we can say about the extent and impact of corruption in infrastructure in developing countries using existing evidence. A low-end estimate suggests that the financial costs of corruption in infrastructure investment and maintenance alone in developing countries might equal $18bn a year. There is considerable evidence of widespread petty corruption in the area of infrastructure connections as well as larger-scale corruption to gain construction contracts and licenses and even to change regulatory and policy practices. For example, perhaps 25 percent of electricity production is lost to illegal connections in India, as much as 24 percent of funds destined for road construction in a project in Indonesia ‘went missing’ and in the region of seven percent of government contract values are paid in bribes according to survey respondents in Eastern Europe and Central Asia.

At the same time many of our existing measures appear to be very weak proxies for the actual extent of corruption, and in particular grand corruption, in infrastructure. This applies especially to perceptions-based evidence. At the cross-country level, Transparency International’s Corruption Perceptions Index (CPI) appears to be a lagging, rather than leading indicator of corruption scandals. In Indonesia, perceptions of corruption in a road project were weakly related to levels of corruption measured by physical and financial audit. They were also systematically biased, with higher perceived, and lower audited, levels of corruption in ethnically diverse communities. Overall, perceptions indicators are weakly correlated with available survey evidence regarding corruption in construction and utilities, and weakly correlated with infrastructure outcomes.

Survey responses provide considerably more accurate measures of both petty and grand corruption. In Eastern Europe and Central Asia, a large scale survey suggests that levels of corruption are different in construction firms than in other firms across countries, but that the nature of those differences varies by country. In turn this suggests that even accurate general indicators of corruption at the macro level may ill-reflect sectoral realities.

Even with large surveys, noise remains. The survey results from Eastern Europe and Central Asia allows us to make two different estimates of the percentage of company revenues paid in bribes for contracts based on survey responses. These two different estimates are correlated, but with some considerable error (see Figure 2). Again, looking at construction company responses about the level of corruption in construction contracting in their country suggests that answers do not reflect a strong common understanding of sectoral corruption. The survey data allows us to say only a limited amount with confidence about variation across countries in levels of corruption in the construction industry (see Figure Four) and it does not provide sufficient accuracy to provide an ‘actionable indicator’. (It should be noted that this was not an intended aim of the survey designers). Furthermore, existing surveys do not and probably could not capture levels of grand corruption in infrastructure firms themselves.

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