Risk based capital allocation

In this paper, we focus on the economic research of corruption. In the first part, we define corruption, types of corruption, its factors and ways to measure it. This section brings together various definitions by notable authors of this domain, such as Begovic, Tanzi, Mauro or Lambsdorff. Before moving to the second section, we are presenting definitions, typologies and factors already researched by acclaimed authors. In the second part, we focus on the channels by which corruption transmits its effects through the economy. This section consists of two major sub-parts, the first one in which we take part in a vivid scientific discussion with the ‘’apologists’’ of corruption, i.e. with those economists who underline positive roles of corruption. In the second sub-part of the second section, as a logic continuation of the previous sub-part, we are listing three important consequences of rampant corruption in one economy: consequences to economic growth, foreign direct investments and economic efficiency. Major contribution of this paper is compilation of significant scientific discoveries in the area, as well as bringing new arguments in the discussion on the economic consequences of corruption. The paper uses traditional approach of the New institutional economics (NIE), by underlining the importance of governance, transaction costs and rent seeking.