It’s Time to Abandon the “$2.6 Trillion/5% of Global GDP” Corruption-Cost Estimate

In my post a couple weeks back, I expressed some puzzlement about the source of the widely-quoted estimate that corruption costs the global economy approximately $2.6 trillion, or roughly 5% of global GDP. I was hoping that someone out there in GAB Reader-Land would be able to point me to the source for this figure (as several GAB readers helpfully did when I expressed similar puzzlement last year about the source for the related estimate that there are approximately $1 trillion in annual bribe payments). Alas, although several people made some very insightful comments (some of which are in the public comment thread with the original post), this time it seems that nobody out there has been able to point me to a definitive source.

I’ve done a bit more poking around (with the help of GAB readers and contributors), and here’s my best guess as to where the $2.6 trillion/5% of GDP number comes from:

  • As I noted in my earlier post, there’s an undated advocacy document (apparently from June 2008) from the World Economic Forum (WEF), Transparency International (TI), and the UN Global Compact, that opens with some “facts and figures,” including both the estimate that over $1 trillion in bribes are paid each year, and that the cost of corruption is over 5% of global GDP, or around $2.6 trillion. The document lists the “World Bank” as the source for these “facts and figures,” but without any further citation to specific World Bank documents.
  • The source of the “$1 trillion in annual bribes” figure is a World Bank research document; though the original version seems not to be publicly accessible, there’s a published version that explains the methodology for calculating the $1 trillion figure that appeared in one of the WEF’s annual reports. (I discussed this paper and its calculations in another previous post.)
  • That World Bank paper did not attempt to calculate the amount that corruption cost the global economy. It did, however, include some “external checks and validation” to see whether the “$1 trillion in annual bribes” estimate seemed plausible. The idea was to compare this estimate to the results of attempts to estimate other sorts of illicit activity. One of those external reliability checks referred to two earlier studies—a 1998 IMF study and a 1999 research paper by John Walker—that attempted to measure the amount (not the cost) of worldwide money laundering. The IMF study estimated that this amount might be somewhere between 2% and 5% of global GDP, or between $600 billion and $1.5 trillion at that time. The Walker study, which used a different methodology, estimated the total amount of annual money laundering at around $2.8 trillion.
  • There’s also (as Nathan helpfully pointed out in his comment on my earlier post) a 2007 report from the World Bank-UNODC Stolen Assets Recovery Initiative. This report also notes that that the total volume of money laundering is estimated at around 2-5% of global GDP–though the report also observes that although this “figure has been widely quoted in the literature … a documented basis for it could not be found.” (It’s worth mentioning that this document calculates 5% of global GDP as $2 trillion, not $2.6 trillion, presumably because it’s using an earlier year or expressing the figure in constant dollars pegged to an earlier year.)

My best guess (and it really is only a guess) is that someone at the WEF read one or both of these documents quickly and carelessly, and either (1) saw the “2-5% of global GDP” estimate, took the high end of that range, and then calculated what that would be in terms of the global GDP (presumably using 2006 as the comparison year, when global GDP was estimated at a little over $51 trillion), or (2) saw the Walker estimate of $2.8 trillion, misread it as $2.6 trillion, and then calculated what percentage of global GDP that would be. Or maybe whoever was doing this just saw the discrepancy in the estimates and picked a figure somewhere in the middle. Now, maybe this is not the real explanation… but it’s the most plausible scenario I’ve been able to come up with thus far.

If something like that is indeed what happened, then the $2.6 trillion/5% of GDP figure is completely, totally, and utterly bogus—a made-up number based on a mis-reading (and possibly a mis-transcription) of an estimate of something entirely different: the amount (not the cost) of worldwide money laundering (not worldwide corruption). Unless and until we see a better explanation, I’m going to suggest that everybody who cares about evidence-based approaches to anticorruption (or, for that matter, about evidence-based anything) immediately stop using the $2.6 trillion/5% of global GDP figure.

Moreover, since I know we have some readers out there at the World Bank and the WEF, I’m going to publicly challenge both of those organizations either to provide a source for these estimates (complete with an explanation of the methodology), or an explicit public acknowledgement that these estimates cannot be validated and should no longer be used. We should expect no less from organizations committed to both accuracy and integrity.

9 thoughts on “It’s Time to Abandon the “$2.6 Trillion/5% of Global GDP” Corruption-Cost Estimate

  1. Pingback: Corruption Currents: CONCACAF Chief Agrees to Extradition - Background Check Group

  2. Pingback: It’s Time to Abandon the “$2.6 Trillion/5% of Global GDP” Corruption-Cost Estimate | Njoya Tikum

  3. Not exactly the $2.6 trillion number, but there’s an older World Bank post (http://go.worldbank.org/KQH743GKF1) stating:
    “A comprehensive estimate of worldwide corruption would exceed the estimate of bribery alone. This estimate of annual worldwide bribery of about US $1 trillion does not include the extent of embezzlement of public funds (from central and local budgets), or from theft (or misuse) of public assets. […] Furthermore, the $1 trillion estimate does not include the full extent of ‘tainted procurement’, but only the bribe fees associated with such procurement. While, for instance, the estimates of bribery exchanging hands for public procurement bids can be estimated in the vicinity of US$200 billion per year, the overall annual volume estimate of the ‘tainted’ procurement projects, where such bribes take place, may be close to US$1.5 trillion or so.”

    Overall, a lot of wild guessing and number-dropping. I totally agree with your conclusions.

  4. Professor Stephenson, how did that challenge go? I’m very much interested on following-up the outcome of this discussion. Thank you.
    Best regards,
    Ani Karadzhiyan

    • Well, no organization that had been using this (apparently) bogus figure actually issued a retraction or anything like that… not that I really expected that they would. But it does seem to me that I’ve seen this figure cited a lot less in the last year or so than I had before. Up until fairly recently, it felt to me like almost every public speech or advocacy document opened with the claim that corruption costs the world $2.6 trillion/5% of GDP, but now that figure seems to be showing up a lot less. I certainly can’t and won’t claim credit for that — neither my blog audience nor my influence is sufficient to have an impact on how governments and major advocacy organizations talk about corruption — but I do view it as a hopeful sign that the anticorruption community is becoming more serious about evidence-based advocacy.

      • Thank you, Professor Stephenson. Actually, I was about to cite those figures in my Master thesis, but then I was curious about how they came up with that result and, luckily, came across this blog. So one citation less 🙂 Thank you for questioning.. should be what the academics community is all about.
        Best regards,
        Ani

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