Question

In early 2019, The Economist reported that Venezuela’s GDP had fallen by 50% over just five years. During the same time period, charges of bribery and corruption were piling up upon members of the Venezuelan government, including President Nicolás Maduro, whose reelection that year was widely perceived as illegitimate.

Using what you learned in the chapter, indicate how bribery and corruption in the Venezuelan government could lead to declines in GDP.

a. The negative impact of bribery and corruption on growth is primarily due to their impact on (Choose one)

• government spending
• imports
• investment
• consumption

What are some of the crucial elements that governments must provide to encourage innovation and growth? (select all that apply)

b. Governments should

-adopt efficient regulations.

-embrace policies that encourage innovation.

-recognize and guarantee property rights.

-establish and maintain a stable society.

Answer 1

Acccording to World Bank, corruption refers to 'a symptom of deep-seated economic, political and institutional weaknesses'. In simple, corruption can be undeerstood as abuse or misuse of public power for personal gains. As per Transparency International's Corruption Perception Index 2019, Venezuela has been ranked 173rd out of 180 countries, making it 7th most corrupt countries in the world.

There are far-reaching impacts how bribery and corruption affect an economy, of which, the most important being decline in GDP. This is so because of the following reasons:

• bribery and corruption can cause hyperinflation in the market and shortages for essential commodities, which can lead to contraction in the economic activities, further leading to decline in GDP.
• Even though Venezuela has the world's largest proven oil reserves, its production plunged due corruption and mismanagement of state-owned oil company.
• The government's economic policy, especially with regard to currency and price-controls have resulted in increased black-market activities and organised crime networks.
• Government's strict control over labor market has resulted in less job growth
• Bureaucratic meddling has halted business operations and further production growth
• Strict control over financial sector, which allocates credit based on political influence, which inturn hampers private investment and further adversely affects the imports and exports of the Venezuelan ecnomy.

a.The negative impact of bribery and corruption on growth is primarily due to their impact on investment.

b. To encourage innovation and growth, governments should

• adopt efficient regulations
• embrace policies that encourage innovation
• recognize and guarantee property rights
• establish and maintain a stable society