The Impact of Corruption on the Economic

Growth of Somaliland in Hargeysa, Somaliland

Submitted By: Yasmeen Hassan Abdi

&
Farah Yousef Adam

Gollis University

A RESEARCH REPORT PRESENTED TO Gollis UNIVERSITY GRADUATE SCHOOL IN

PARTIAL FULFILLMENT OF AN AWARD FOR A DEGREE OF BACHELOR IN POLTICAL
SCIENCE & INTERNATIONAL RELATIONS

September, 2016

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 CHAPTER ONE
Problem and its Scope
1.0 Introduction
This chapter presented the background to the study, statement of the problem, the purpose of the
study, objectives of the study, research questions, research hypothesis, scope of the study,
significance of the study, operational definitions of terms and concepts as applied to suit the
context of the study.

1.1 Background of the study

Historical Perspective
Corruption is now a disease for democracy and developing countries. Despite, being under
tremendous criticism and accusation, it does not go back either, its dynamics tends to rise faster
than its ability to neutralizing it. Corruption takes a larger share in Sub-Saharan Africa, Newly
Industrialized of Asian and Latin America.

The pre-history of corruption goes back as far as ancient Greece; Athenian politicians and later
the Roman statesman Cicero campaigned against the evils of vote-buying and bribery of judges.
In France, the public expressed its disgust over corruption at the court until the death knell rang
for the ancient régime in 1789. In Britain, liberal and radical groups spent some forty years
fighting what they identified as ‗old corruption‘ – feudal structures in parliament, the
administration and the awarding of offices. (Engels, 2014)

Citizens in Africa are confronted with corruption to access poor basic services, illicit financial
flows from Africa are quickly draining the continent and depriving African countries of
resources for investment and development. The UN Economic Commission for
Africa estimates that the annual outflow of illicit finance through trade mispricing alone stands at
about US$60 billion, having grown at a real rate of 32.5 per cent in the decade between 2000 and
2009. Illicit financial flows are a serious threat to Africa‘s economic growth and development.
(Campbell).
In 1990s, while the state leaders of Somaliland at that time were engaged in building both state
capacity and authority, the corruption acts committed by the officials at that time was less than

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the followed decade. In fact, the economic costs of corruption fall disproportionately on the poor,
for instance, administrative barriers and bribes demanded by public officials represent a greater
setback to the national development. In essence, corruption undermines the delivery of public
services such as health care and education on which the poor depend, among other public
benefits. (M.Ali, 2014)

In both the 19th and 20th centuries, technical change played an important role. But, paradoxically,
in the 19th century it was the dramatic decline in transport costs that enabled the rapid expansion
of global trade and real incomes, whereas in the second half of the 20th century, it was a dramatic
decline in policy-induced trade barriers that had the same effect. (O.Krueger, 2006).

At the beginning of the 20th century sub-Saharan Africa was ―an overwhelmingly land-
abundant region characterized by shortages of labor and capital, by perhaps surprisingly
extensive indigenous market activities and by varying but often low levels of political
centralization‖. This shortage of labour was overwhelmingly due to the slave trade. From the end
of the 19th century sub-Saharan Africa suffered around 60 years of colonial plunder and as a
result, ―on a continent of household-based agrarian economies with very limited long-distance
trade, colonialism imposed cash-crop production for export, and mineral extraction, with
manufacturing supposed to come later. (Adbulkadir,A.A Jayum,A.B Zaid and A.S Asnarulkhadi,
2010).
Between 1991 and 1997, livestock export on the hoof grew considerably, exceeding pre-war
levels when Somaliland exported some three million heads of livestock in 1997, mostly to Saudi
Arabia (UNDP, 1998). The value of livestock exports in 1997 was estimated to be US$ 120.8
million, yielding as much as 80% of the total hard currency income for Somaliland's population
(UNDP 1998).

1.2 Conceptual perspective

Corruption is Dishonest or fraudulent conduct by those in power, typically
involving bribery.(Oxford Dictionary). Corruption is the misuse of property or power for the
benefit of an individual.

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Economic growth is defined as the total market value of all final goods and services produced
within a country in a given period. ( Investopedia). Economic growth is the number of services
and products, produced in a country in a year which is measured by GDP(Gross Domestic
Product)

Corruption affects economic performance is by impacting both the volume and the composition
of government expenditures and revenues, subject to existing tax legislation and incomes. By
reducing both direct and indirect tax revenues, corruption jeopardizes the public sector‘s ability
to provide adequate levels of public goods to facilitate private sector development. On the
expenditure side, diversion of resources from human capital formation (health and education) to
less capacity enhancing activities curtails countries‘ economic growth potential.

1.3 Contextual perspective

The current administration is conducting massive embezzlement of the public funds and the
international aids as well. Corruption has become a known phenomenon observed in Somaliland
today which reflects the gloomy image of administrative corruption in a widespread. This
phenomenon of corruption is getting worse to the point of threatening our society leading them
to the social havoc and severe economic recession. The corruption level which is 42.5%
according to survey carried out by Good Governance And Anti-Corruption
Commission(GGACC) in 2013 undermines social services, such as health, education, water,
electricity and others, therefore, the people with limited income were extremely affected. Among
the indicators of corruption are the government expenditures, use of tribalism in getting to work
force, use of bribery among citizens and income inequality.

The poverty in urban areas of Somaliland is 29%, but that rural poverty at 38% in Somaliland is
higher according to World Bank and Ministry of Panning in 2013. The low investment in social
services, has taken a toll on human and economic development due to lack of skilled labors,
fragile economy and the unpredictable regulatory framework. This low economic growth got
worse to the point of threatening our society leading them to the social havoc. This deliberate
policy adopted by the current totalitarian regime reduces the economic growth of the country.
This is the most serious challenges facing the country due to low economic growth rates and

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lower performance and productivity in the public sector. The indicators of low economic growth
in Somaliland are low distribution of investment, low employment level, the Gross Domestic
Product (GDP) and poverty reduction.

1.4 Theoretical perspective

The theory of extractive corruption is about the state is the stronger part in the state-society
relationship. According to this theory, the corrupted (the state or some state agent) benefits the
most from corruption and the corrupter is more or less a passive player. Essentially, the ruling
elite is the strongest force is society, this elite or class uses the state apparatus as its instrument to
extract resources from society, and it does so for the benefit of the rulers. This theory is the most
appropriate theory to be used as it is closely related to how corruption contributes to lowering the
economic development of a country.

1.5 Statement of the problem

The society of Somaliland is riddled with corruption from top to bottom which aggressively
affected the popular perception of the state and its relationships with society. As a result of this,
corruption has caused so much damage to the economic growth of Somaliland.

Among the damage corruption has done in under developing Somaliland and lowering
investment in areas where they are potentials because of the practice of tribalism. Moreover,
29.3% of the people believe that the economic conditions of Somaliland are negative. Our young
people are suffering from cruel unemployment which is around 75% according to survey carried
by World Bank. In another survey that was carried out by Good Governance And Anti-
Corruption Commission(GGACC) in 2013,it is estimated that the level of corruption is 42.5% in
Somaliland.

In fact, the economic costs of corruption fall disproportionately on the poor, for instance,
administrative barriers and bribes demanded by public officials and the high unemployment rate
which represent a greater setback to the national development. In essence, low economic growth
undermines the delivery of public services such as health care and education on which the poor
depend.

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1.6 Objectives of the study

1.6.1 General objectives

To establish the relationship between corruption and economic growth in Hargeysa, Somaliland.

1.6.2 Specific objectives

1-To analyze the level of corruption.

2-To determine the ways corruption effects the economic growth

3- To determine the relationship between corruption and economic growth.

1.7 Research Questions

This study will seek to answer the following research questions:

1. What is the level of corruption?
2. What are the causes of corruption?
3. Is there significant relationship between the corruption and economic growth?
1.8 Research hypothesis
This research will be based on the following assumption:
Null Hypothesis: There is no relationship between corruption and economic growth in
Somaliland.

1.9 Scope
1.9.1 Geographical Scope
The study will be carried out in Hargeysa, Marodijeh region in Somaliland because it is the
metropolitan center in Somaliland where many of the government institutions are found such as
Good Governance And Anti-Corruption Commission and Ministry of Trade and Investment.

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1.9.2 Content Scope
This study will focus on how Corruption such as tribalism, bribery, government expenditures and
low income influences the economic growth which include employment, investment, the GDP
(Gross Domestic Product) and poverty in Somaliland.

1.9.3 Time scope

The study will be focused a period of four years that is from the year 2010 to 2014. This period
of time was proposed for this study because it is the time that Kulmiye party government of
Somaliland was elected. 76.6% respondents believe that corruption is common in public
institutions according to survey carried out by Good Governance And Anti- Corruption
Commission (GGACC) in 2013.

1.9.4 Theoretical scope

The theory selected is the extractive corruption theory, this theory is relevant to the study
because it about how corruption practiced by certain government officials undermines the
economic growth of the country.

1.10 Significance of the study

1-To address the Ministry of Trade and Investment in creating monitoring systems to tackle
corruption which damages the economy.
2-To help Good Governance And Anti-Corruption Commission (GGACC) to create new
strategies to tackle corruption.
3- To address policy makers of the country to enhance transparency and accountability.

1.11 Operational definition of key terms

Corruption is the misuse of property by an individual for his/her owns benefit .Economic growth
is the increase in the production of goods and services in a country which can be measured by
GDP (Gross Domestic Product).

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 Chapter two

Literature Review

2.0 Introduction

This chapter embraced the theoretical review and the conceptual framework. The chapter also
articulated the related literature in relation to research objectives. Lastly the existing gaps in the
literature review were pointed out.

2.1 Theoretical Review

Theory of extractive corruption

The state is the stronger part in the state-society relationship. According to this theory, the
corrupted (the state or some state agent) benefits the most from corruption and the corrupter is
more or less a passive player. Essentially, the ruling elite is the strongest force is society, this
elite or class uses the state apparatus as its instrument to extract resources from society, and it
does so for the benefit of the rulers.

Neo-patrimonialism is defined as a political system where the chief executive maintains

authority through personal patronage, rather than through ideology or law. The theory of
extractive corruption is furthermore derived from the relatively stable and rather flexible neo-
patrimonial political systems found in most of Africa and in a few Latin American and Asian
countries.
Political corruption and bureaucratic corruption (“grand” vs. “petty”)

Political or grand corruption takes place at the highest levels of political authority. It is when the
politicians and political decision-makers, who are entitled to formulate, establish and implement
the laws in the name of the people, are themselves corrupt. Political corruption is when political
decision-makers use the political power they are armed with, to sustain their power, status and
wealth. It is when policy formulation and legislation is tailored to benefit politicians and
legislators.
Political corruption can thus be distinguished from bureaucratic or petty corruption, which is
corruption in the public administration, at the implementation end of politics. Petty corruption

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has also been called ―low level‖ and ―street level‖ to name the kind of corruption that citizens
will experience daily, at times, in their encounter with public administration and services like
hospitals, schools, local licensing authorities, police, taxing authorities and so on.
The distinction between political and bureaucratic corruption is rather ambiguous. It depends on
the separation of politics from administration, a particularly unclear delineation in Third World
countries. The distinction is nevertheless important. Political corruption is namely something
more than a deviation from formal and written legal norms, from professional codes of ethics and
court rulings.

Political corruption is when the laws and regulations are abused by the rulers, sidestepped,
ignored, or even tailored to fit their interests. It is when the legal bases, against which corrupt
practices are usually evaluated and judged, are weak and furthermore subject to downright
encroachment by the rulers.

The consequences of bureaucratic or petty corruption are severe. Bureaucratic corruption is a

predicament to private businesses as well as to any citizen‘s everyday dealings with state
officials. It excludes many people from public services and increases their cost, it obstructs,
impedes and skews public spending, it makes markets irrational, and it makes the public
administration and the entire political system illegitimate in the eyes of the population.

Political corruption has even more substantial political repercussions, because it affects the
manner in which decisions are made. Political corruption implies the manipulation of political
institutions and the rules of procedure, and it consequently distorts the institutions of
government. Political corruption is a deviation from the rational-legal values and principles of
the modern state, and leads to institutional decay. The basic problem of political corruption is the
lack of political will to encounter the problem: the power-holders do not wish to change a system
of which they are the main profiteers.

In some cases, political corruption might take place in higher places without the general public
coming across it in their daily life, or ever knowing about it. Political corruption might be
incidental, controlled or concealed, as in most consolidated liberal democracies. Likewise,

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bureaucratic corruption might take place at the implementation end of public administration
without necessarily being a part of the political system or having political repercussions. This
happens in particular when a clean and strong government has been able to purify the corridors
of power, but not every inch of the public service so that certain services or bureaux are (still)
polluted.
However, widespread and systematic bureaucratic corruption and political corruption tends to go
along and to be mutually reinforcing. Political corruption is usually supported by widespread
bureaucratic or petty corruption, in a pyramid of upward extraction. And corruption in high
places is contagious to lower level officials, as these will follow the predatory examples of, or
even take instructions from, their principals.

This is why a strict definition of corruption as a deviation from formal rules, and a particular
focus on bureaucratic corruption alone, can be misleading. Widespread and systematic political
corruption may be a basic mode of operation ofcertain regimes. Actually, with the exception of a
few cases of strong authoritarian regimes with a strict political and economic control (also on
corruption), corruption is widespread in most non-democratic countries and in particular in the
countries that have been labelled ―neo-patrimonial‖, ―kleptocratic‖ and ―prebendal‖. Here,
corruption is one of the mechanisms through which the authoritarian power-holders enrich
themselves. It is not a disease that the responsible politicians are eager to
avoid, but it is a deliberately applied practice. Bureaucratic corruption can by large be controlled
and restricted when there is a political will and ability to implement the necessary regulations. A
number of experiences demonstrate that bureaucratic corruption can be dealt with through
auditing, legislation, and institutional arrangements. In most liberal democratic countries, where
the problem of political corruption is of an incidental and occasional nature, this can be dealt
with within the existing political system: by reforming, strengthening and vitalising the existing
political, judicial and administrative institutions.

In countries with systemic political and administrative corruption, the formal legal framework of
the state is insufficient as terms of reference to assess and judge the problem of corruption. Thus,
the degenerative effects of political corruption cannot be counteracted by a legalistic or
administrative approach alone. Moral, normative, ethical, and indeed political benchmarks will

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have to be brought in. Endemic corruption calls for radical political reforms, a system of checks
and balances, and democratization.

2.2Conceptual frame work

Independent Variables Dependent Variables

Corruption Economic Growth

 Nepotism/tribalism  Investment
 Bribery  Employment
 Government  Gross Domestic
Expenditures Product(GDP)
 Low income  Poverty reduction

Source: Conceptualized by the Researchers

In this conceptual frame work, shows how corruption such as nepotism, bribery, government
expenditures and income inequality influence on the economic growth of Somaliland by
effecting its investment, employment, Gross Domestic Product(GDP) and poverty of the country.

2.3 Indicators of Corruption

i. Nepotism

Nepotism is a type of favoritism that Wong & Klemer defined Nepotism as ‗the hiring and
advancement of unqualified or under qualified relatives simply by virtue of their relationship
with an employee, officer, or shareholder in the firm‖ (Wong & Klemer, 1994, p 123) The word
nepotism comes from the Latin word for nephew due to the hiring of an in-law or relation.
The word itself is surrounded by negative connotations, even in its definition it states the
Giving of unqualified or under-qualified relatives. Many authors have written anecdotal.
Evidence on the topic and talk of its negatives (Wong & Klemer, 1994) (Laker & Williams,
2003)
On the other hand, many authors look at the positives of nepotism, l e Bellow, in his book in

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Praise o f Nepotism (Bellow, 2003). In order for this research to be objective, we must assume
that nepotism is neither good nor bad Bellow explains that it is not the practice that is bad, but
indeed the way it is practiced that determines the negatives or positives outcomes For the
purpose of this paper, nepotism will not be viewed in either a positive or negative manner.
The research will instead try to gain a full understanding of the practice Mulder also explains that
―It is also important to note that this study‘s definition of nepotism does not include close family
friends, despite the fact that a reasonable argument could be made for their inclusion in a
definition of nepotism‖ (Mulder, 2008, p 54) This type of favoritism can be referred to as
cronyism. But it will not be the focus of this study as the variables are too difficult to determine
in such a case In a more specific paper, Khatri and Tsang discuss the various antecedents and
consequences of cronyism when it is operating within organizations, they discuss the difference
between two different types of cronyism, horizontal and vertical.
Firstly, they discuss horizontal cronyism as ―Horizontal cronyism occurs among peers, such
as business associates, friends, and colleague‖ (Khatri & Tsang, 2003, p 299) Secondly, they
discuss vertical cronyism as ―vertical cronyism is based on a superior-subordinate
relationship within the organization.

The effects of Nepotism at work are:

 An employee may not have a managerial or administrative relationship over a relative

(this prohibition applies to occasional and/or unintentional relationships as well as routine
duties).

 Relatives may not be employed or continued in employment where a conflict of interest

exists.

 An employee can appoint or promote a relative; this can damage the effectiveness of the

job.

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 ii. Bribery
The nexus between bribery and corruption must be fully comprehended at the outset of this
paper. This is because there can be no bribery without corruption. Corruption refers to the misuse
of entrusted power for private gain. Corruption is a broader term in which lesser evils such as
bribery, nepotism and even misappropriation fall under as can be seen from Nye‘s definition of
corruption: ‗behavior which deviates from the formal duties of a public role because of private
regarding (personal, close family, private clique) pecuniary or status gains, or violates rules
against the exercise of certain types of private regarding influence. This includes such behavior
as bribery (use of a reward to pervert the judgment of a person in a position of trust); nepotism
(bestowal of patronage by reason of astrictive relationship rather than merit); and
misappropriation (illegal appropriation of public funds for private regarding uses)‘.

Bribery can also be an offer, a payment or a promise to pay money or goods, favour, an
advantage, privilege, property or an object of value to a person in order to influence his views,
actions or conduct. Bribery is viewed in two ways. These are bribery according to rule and
bribery against the rule. Bribery according to rule is where a bribe is paid in order to receive
preferential treatment for something that the bribe receiver is required to do by law. For instance,
a builder offers to pay money to a building inspector in order that his building premises are
inspected. Bribery against the rule is where a bribe is paid to receive preferential treatment or
obtain services for which the bribe receiver is prohibited from doing. For instance; an accused
person offers to pay money to the prosecuting officer in order not to get charged to court. For an
act to be seen as a bribe, there will be an understanding that the thing offered, paid or promised
to be paid is meant to influence the views, actions and conduct of the receiver who if he accepts
must .

Effects of bribery: The act of bribery has become a nuisance to all parties concerned in a
business transaction. It leads to a waste of resources, undermines the confidence of international
businesses in the legal and political order of the host country as well corrupt the business ethics
of the international companies concerned. This in turn affects the investment climate of the host
country as well as taints the reputation of the international companies. Before one can lay blame
on the host country one must understand the culture of such a country as it relates to bribery.

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 iii. Government Expenditures

Economically, the state budget is an expression of social and economic policy desired by the
government. This budget is decided and implemented by politicians on behalf of the collective
interests. But, by analyzing the issue of with a little hindsight, we might ask whether the
composition of the government budget is not dictated by the behavior of the partisan politician.
To this question, study reported in the literature lead to a very different conclusion. The
empirical survey developed by Mauro (1998) is probably the most popular. It shows that
corruption has a significant impact on the composition of the government expenditures.
Mauro(1998) argues that some budget expenditures ( including education) are less likely to
foster corruption than other, probably because of their low intensity in high technological. Thus,
it cannot be any provision in this oligopolistic industry. In contrast, military spending has more
chance to retain corruption [Mauro (1998), Myint( 2000)]. Government‘s budget is often
structured to facilitate the rent-seeking [Mauro (1998)].

iv. Income inequality

Income inequality refers to distribution of money income. Income inequality should not to be confused
with economic inequality. The ideas of income inequality are based on ‗how well income is distributed
among individuals or groups in a society‘. When measuring income inequality one can collect data within
different settings, such settings can be ‗different classes in a society‘, ‗different professions‘, or by
‗genre‘. Much of early economic theory which deals with inequality is divided by occupation, e.g.
doctors, lawyers, miners, sailors, etcetera but also between countries. Our way of searching for
explanations for differences in income inequality can be considered a bit far-fetched but we rather look at
it as a two-step process. Measuring economic inequality is more complex than income inequality. Income
inequality has a propensity to look at the economic conditions for individuals or groups. While economic
inequality refers to the contrasts between economic conditions of different persons or different groups.
Although income inequality is not necessarily the same as economic inequality, one can historically see
that economic inequality estimates are taken from income statistics. The reasons beyond the latter may
origin from several sources. One reason and maybe the most important reason is that income appears to
have a substantial significance for the persons‘ living standards. Additionally, income statistics are cheap
and can easily be collected (i.e. individuals filing for income taxes). Origins of economic and income
inequality are several. Including factors among others; structure of political governance, institutional
stability, corruption, labor, innate ability, education, race, gender, culture.

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Corruption does not only affect income growth but also affects the distribution of income. ―The benefits
from corruption are likely to accrue to the better connected individuals … who belong mostly to high
income groups (Gupta et. al. 2002, 23)‖. As Tanzi (1995) argues, corruption distorts the redistributive role
of government. Since only the better connected individuals get the most profitable government projects, it
is less likely that the government is able to improve the distribution of income and make the economic
system more equitable. Nevertheless, there are only a couple of empirical studies (Li et. al. 2000, Gupta
et. al. 2002) analyzing the effects of corruption on income distribution whereas theoretical studies are
almost non-existent. Both of the empirical studies find that corruption increases income inequality
significantly.

Edwards (1998) suggests that there is no evidence linking openness or trade liberalization to increases in
inequality. However, the findings are subject to the usual caveats about cross-country regression
studies. Dollar and Kraay (2002) consider a number of factors that might have direct impacts on incomes
of the poor through their effect on income distribution. Openness to international trade, amongst a host
of pro-poor macroeconomic policies, is found to raise average incomes with marginal systematic effect
on income distribution. But, the finding might be biased by the empirical specification and the set of
countries. Lundberg and Squire (2003) show that inequality is significantly and positively related to the
SachsWarner openness indicator, that is, liberalization worsens income distribution. Greater openness
can impact domestic inequality by affecting the real incomes of credit-constrained groups, or relative
factor returns. Also, openness can affect the income gap between regions, particularly the real income
of immobile factors, by changing the spatial concentration of economic activity (Anderson, 2005).
Greater openness might also affect inequality by limiting or reducing the ability of the government to
redistribute income via taxes and transfers (Tanzi, 2001).

2.4 Indicators of Economic Growth

a) Investment

There is a vast empirical literature on the effect of corruption on investment. However, most of
the studies use country-level (aggregate) data on investments for their analysis — our literature
review revealed only three papers that have analyzed the effect of corruption on investments.
The paucity of research on how corruption affects firm behavior is noted in Svensson (2003, pp.
209) who writes that ―despite more than two decades of research, however, economic studies on
corruption at the firm level are rather limited.‖ Wei (2001, pp. 11) conducts an extensive review

15
of the corruption-investment literature and concludes that ―firm-level studies are generally rare,
for the obvious reason that firm-level data are more difficult to assemble.‖ Analyzing how
corruption affects investment is important because reports from several surveys suggest that
corruption affects firm performance. For example, about 74% of the firms that participated in the
World Business Environment Survey (WBES) conducted by the World Bank (described in detail
in Section 5) reported that corruption was an obstacle to the operation and growth of the
business.

The theoretical literature on corruption suggests that the impact of corruption on firm level
investment is unclear. On the one hand, corruption raises operational cost, creates uncertainty
and thereby deters investment (cf., Shleifer and Vishny, 1993; Wei, 1997 and Campo et al.,
1999). Furthermore, models of firm investment under uncertainty show that if capital is partially
irreversible, then greater uncertainty about future returns on investment increases the option of
waiting to undertake an irreversible investment (Pindyck and Dixit, 1994). However, the
negative effect of corruption can be neutralized or offset in situations where corruption creates
opportunities for private illicit gains to firms — such as paying ―cash for contracts.‖ Indeed, in
many developing countries, firms sometimes pay bribes to win a lucrative government contract,
to have access to raw materials at state subsidized prices, to obtain credit at below market
interest rates, to acquire scarce foreign exchange or collude with tax collectors to reduce tax
payments. For example, in August 2006, the Department of Institutional Integrity, a special unit
of the World Bank in charge of investigating fraud in World Bank projects announced that it had
found evidence that an Indonesian firm had made ―facilitation and gratis payments exceeding
$300,000 to officials of Ministry of Public Works,‖ in connection with a $6 million
transportation project funded by the World Bank.

A free trade agreement with neighboring countries creates mutual economic dependence, which
increases over time as specific investments are made in response to the favorable trade treatment.
Conversely, trade is higher when a security alliance specifically includes economic cooperation
than when it does not; trade in the latter situation is insignificantly different than trade between
non-allies. Similarly, Martin et al. (2010) find ―complementarity between economic and political
gains.‖ Of course, preferential trade agreements can lead to trade diversion; comparing possible
gains from a reduced risk of war and economic losses from trade diversion remains problematic.

16
 b) Employment

Explanation of this finding is that corruption has an impact on the size of the informal sector
(shadow economy) and the size of the informal sector subsequently impacts income levels and
growth rates (La Porta and Shleifer, 2008). Specifically, in lower-income countries, corruption
and the informal sector are found to be complements and therefore a higher level of corruption
translates into a larger informal sector (Dreher and Schneider, 2010). Furthermore, it is highly
plausible that the unofficial economy and the official economy are substitutes, rather than
complements, in lower income countries causing the official economy to suffer when the
unofficial economy is large (Dreher and Schneider, 2010; Johnson et al., 1997). Therefore, it
could be the case that we see this strong negative association between low-income countries and
high corruption levels partly because corruption is driving individuals to participate in the
informal sector, seemingly lowering income and GDP per-capita due to its negative impact on
the formal economy alone.

Thus, if the informal sector has a significant impact on economic outcomes and if corruption and
the informal sector are significantly correlated, the previous empirical results are potentially
biased. On the second component, poverty reduction can occur through the poor engaging in
some form of employment, self-employment as well as wage employment. But like the
qualification on the impact of growth on poverty reduction mentioned earlier, it could be argued
that high economic growth may fail to bring about a commensurate rate of poverty reduction if it
is not accompanied by a rapid growth in productive remunerative employment. A. R. Khan
(2001), for example, has documented several cases where the above situation could take place:

When output elasticity of demand for labour is low, i.e., when economic growth may have low
employment intensity due to inappropriate economic policies and institutions.
When the employment impact of high growth is offset by the countervailing contraction of
employment induced by economic reform under globalisation thereby resulting in a low
observed output elasticity of employment.

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When economic growth could lead to a high rate of growth in employment of a kind for which
the poor do not possess necessary skills.

Given that employment in the informal sector, for the likes of street vendors, shop attendants,
and home contract workers, has been striking in Thailand, the workers in this sector may not be
working as consistent or as much as their formal counterparts. These informal workers are
perceived as ―underemployed,‖ that is, those who work less than 20 hours a week.
Underemployment is an equivalence of and can be counted as ―hidden‖ unemployment. Its
change has been dramatic, reflecting the manifestation of the employment problem in times of
the crisis. In August 1997 (after the floatation of the Thai Baht one month earlier), the
unemployment rate (open and hidden) elevated to 9.1 per cent, a sizable change from 5.3 per
cent in the same month of 1996; in the next 6 months to February 1998 the rate accelerated to
10.12 per cent.

Employment is the vital link between economic growth and poverty. In other words, the quantity
and quality of employment of the poor determines how economic growth transforms into a
higher income for the poor. When economic growth generates employment for the poor, it will
raise labour demand, which help the poor who are unemployed or underemployed find jobs and
earn incomes enough to meet their basic needs. And if labour productivity of the poor and
marginal return for the poor increase from economic growth, the implication is an increase in
their income.

One, GDP growth that expands an economy allows more employment. Two and three are the
growth elements that generate an increase in employment and an increase in per capita income,
which enables households to escape poverty.

c) GDP( Gross Domestic Product)

The first step in understanding how sectorial growth affects poverty via its impact on the
quantity and quality of jobs is to find a suitable methodology for profiling growth. Analysis of
the relationship between growth and employment has traditionally focused on the employment
elasticity of growth – that is, the percentage change in employment in response to 1 percentage

18
change in output. This measure has three notable shortcomings. First, it says nothing about the
actual extent of job creation since a country that grew by 1% and enjoyed a 1% increase in
employment would have the same employment elasticity rate as a country which had a 10%
growth rate accompanied by a 10% increase in employment. Second, the measure does not take
demographic changes into account, although growth in population often swamps increases in
employment. Third, and most obviously, the employment elasticity of growth says nothing about
the quality of new jobs created. A simple way of understanding how growth is associated with
increases in the quantity and quality of jobs is to perform a decomposition of per capita GDP
growth into three components: productivity changes, employment rate changes and demographic
changes. The amount of growth that can be attributed to changes in output per worker can be
obtained by calculating the resulting growth in per capita value added between two points in
time under the hypothetical scenario in which employment rates and the share of the working age
population remain constant, but output per worker has changed as observed. Similarly, the
amount of growth attributed to changes in employment or the share of the working age
population can be obtained by calculating per capita value added when the other two
components are held constant. This shows the results of this growth decomposition, using the
example of Nicaragua over a four year period (2001-2005), during which value added growth
totaled 12%. It shows that almost three-quarters (74%) of the increase in growth can be linked to
changes in the structure of the population. In other words, had everything else stayed the same,
the reduction in the number of dependents per working age person would have generated a
growth rate of 5.3% (or 74% of 7.12). Changes in employment were also important: accounting
for over half (51%), of the observed growth. This means that if productivity and the number of
dependents per working age member had both remained constant, the higher rate of employment
would have generated a GDP growth rate of 3.6% (or 51% of 7.12). Unfortunately, changes in
productivity acted in the opposite direction. Indeed, had population and employment levels
remained constant, shrinking productivity would have had a negative impact equivalent to more
than a quarter (26%) of the actual observed growth rate. Put differently, had productivity not
changed, observed growth would have been close to 9%, but decreases in productivity meant that
growth was 7.12%.

19
 d) Poverty Reduction

Corruption invariably increases transaction costs, lowers efficiency and diverts available
resources into private pockets/accounts by way of misallocation/appropriation and distorts
investment priorities. It weakens the state and its ability to promote development and social
justice. (Dr. I. Ogboru and Dr. A. C. Abimiku, 2016). Poverty generally tends to decline when
economic growth is on the rise. Economic growth can help reduce poverty through an increase in
household income, providing earnings to obtain the minimum basic needs. Various studies on
poverty and economic growth Kakwani (1993); Kakwani and Pernia (2002); Osmani (2002),
however, found that economic growth alone is insufficient for enhancing poverty reduction. The
pattern and sources of growth, as well as the manner in which its benefits are distributed, are
significant in achieving the goal of poverty reduction. To validate the theoretical and empirical
arguments, the discussion on the performance of the Thai economy with respect to the course
and pattern of economic growth during 1980-2002 as well as the poverty incidence in the
country is offered in this Throughout that period, except for the crisis period, Thailand had
achieved both high rates of economic growth and reduction in poverty. However, economic
growth does not benefit all equally e.g. the poor as opposed to other groups in Thailand. Only in
the periods of 1992-1994, 1994-1996 and 2000-2002 did high rates of economic growth generate
an increase in real income share for the poorest 20 per cent of population. This can be linked
with a larger reduction in poverty over these periods than in other periods.

On this first component, it is almost universally accepted that economic growth is a necessary
condition that brings about an increase in income, which, in turn, pushes people out of poverty.
In a celebrated study, Dollar and Kraay (2002) argue that ―Growth is Good for the Poor‖ because
when they tried to find a statistical association between the growth of average income of the total
population of the world‘s developing countries and the average income of the poorest quintile of
the same population, results had shown that there is a one-to-one relationship between the
growth of income of the general population and the growth of income of the poor. In other
words, as the income of the overall population grows, so too does the income of the poor.
While this general conclusion has many believers (for example, Bhalla (2003)),
there are researchers who questioned the accuracy of such a conclusion, and had tried to
qualify the effects of growth on poverty reduction. It has been agreed that growth is a

20
necessary but not sufficient condition for poverty reduction, and many have attempted to
explain why this is so. Osmani (2003), for example, argues that there is no invariant
relationship between the rate of growth and the rate of poverty reduction. In other words,
faster growth is not always accompanied by a faster rate of poverty reduction, just as slower
growth does not always entail slower rates of poverty reduction. To Osmani, there are three
factors that affect the income of the poor. The first is the growth factor, which is the rate at
which the production potential of the economy expands, which brings about an upward shift in
the production possibility frontier. The second is the elasticity factor, which is the extent to
which an upward shift of the production possibility frontier enhances the employment potential.
And the third is the integrability factor, which defines the extent to which the poor are able to
integrate into economic processes so that when growth occurs and the employment potential
expands, they can take advantage of the greater scope for improving the quality and quantity of
employment. In short, for any given rate of growth, what determines the rate of poverty
reduction is the degree to which the employment potential responds to economic growth
(elasticity) and the extent to which the poor are equipped to integrate into the expanding
activities (integrability).

In yet another series of studies, Datt and Ravallion (1992), Kakwani (1993), Kakwani and Pernia
(2002), and Francois Bourguignon (2002) have shown that growth alone is insufficient to have
an all-encompassing and dominant effect on poverty reduction, but its effect on poverty
reduction could be shared by the redistribution effect of income change. In other words, while
growth may bring about reduction in poverty, such reduction may be either enhanced or offset by
the distributive aspects of income change. The type of growth that has a beneficial effect on both
poverty reduction and improved income distribution is ‗pro-poor‘ growth, which is often defined
as growth that improves the income position of the poor relatively more than that of the non-
poor.

2.5 Relationship between Corruption and Economic Growth

Theoretically, the literature does not reach any agreement on the impact of corruption on
economic growth. Some researchers suggest that corruption may be desirable (Leff, 1964,

21
Huntington, 1968; Acemoglu and Verdier, 1998). Corruption acts like a tax or rate that different
peoples or entities pay to bureaucrats; it also makes government services more efficient and
provides a leeway for entrepreneurs to avoid established rules. From this perspective, corruption
acts as a lubricant that smoothes operations and so increases the efficiency of an economy. This
theoretical debate on the impact of corruption in the economy has produced empirical studies
establishing a relationship between economic growth and corruption. To find the causes of
various empirical estimates, below are introduced the various methodologies that have analyzed
the problems in existing studies, before presenting our data and model specifications. In recent
years, many empirical studies have been published on the impact of corruption on economic
growth. Corruption indexes have enabled researchers to do empirical studies about the causes
and consequences of corruption. These empirical studies show that corruption reduces
investment growth, increase poverty and inequality and distort resource allocation. We have
listed the existing empirical estimates of the impact that corruption has on economic growth.
Leff (1964), Huntington (1968) and Acemoglu & Verdier (1998) argue that corruption can
increase economic efficiency. This comes as a result of the use of "fast money", allowing
entrepreneurs to avoid bureaucratic delays in exchange for money. Shleifer and Vishny (1993)
have established and further developed a model 'subject - principal' of corruption. In this model,
the government is the president and bureaucrats are the subjects. By acting on the basis of their
interest bureaucrats profit bribes at the expense of the benefits that the government should have.
As a result, it brings about that corruption and reduces efficiency. Blackurn and Forgues - Puccio
(2009) have built a model that predicts that corruption can limit (or increase) the efficiency of the
economy. On the other hand, corruption tends to damage the new innovative activities, because
the government should supply with goods and products, such as import licenses and quotas, more
than manufacturers. Demand for these products is high and inelastic, i.e., they become the main
targets of corruption. Moreover, unlike the specific manufacturers, limited loans are often the
creators of corruption as people cannot find the money to pay the bribes (Murphy et al, 1993).
This reduces private investment and the stock of production inputs in the long run. Moreover,
corruption favors a particular class of people and creates the opportunity for inequality. Studies
suggest that existing levels of corruption are unfavorable for the country development, e.g.,
Gould and Amaro - Reyes (1983), United Nations (1990), and Mauro (1995). However, the real
impact of corruption on economic growth and its transmission process can only be resolved

22
empirically. Mauro (1995) and Meon and Sekkat (2005), have argued that investment can be a
reliable tool. It can be argued by the fact that the entrepreneurs who have to pay a huge amount
of bribes (which means lower potential profit for the company), may tend to distort and reduce
their production. This can be done by expanding the firm, such as; a firm may allocate financial
resources by reducing the scale of Journal of Economic Development, Management, IT, Finance
and Marketing, 6(2), 57-77, September 2014 59 production and quickly cover its investment
when faced with a high degree of bureaucratic corruption (Svensson 2005). Evidence in favor of
this hypothesis are given by De Soto (1989) in the case of Peru. Such distortions can lead to
inefficiencies that can negatively affect economic growth. Firms can adopt technologies "fly by
night" - i.e. technology with a high degree of readiness to respond appropriately to future
requirements imposed by corrupted officials - and this can cause inefficiency again. (Svensson
2003) Mauro's study identifies a small impact of corruption on economic growth. Mauro has
done a pioneering work (1995), which examines the impact of corruption using the International
Index of Corruption (1984) and growth rates of GDP per capita from 1960 to 1985 (Summers
and Heston, 1988).

Using these variables, Mauro (1995:702-3) shows that a decrease in corruption index
significantly increases the annual growth rate of GDP per capita by 0.8 percent (in Table 1). This
findings based on a simple regression with an instrumental variable (index of ethno - linguistic
factionalism), but it is not strong enough without control variables - Mauro argues (1995:701).
After controlling other variables, including investment, the impact of corruption becomes
insignificant.Mo (2001) also used long-term growth rate of real GDP per capita from 1970 to
1985, initially analyzed by Barro and Lee (1993). This study shows originality, although
controversial, for a ―direct" effects of corruption, as well as ―indirect‖ evaluation through various
transmission channels (for example, investment, human capital, and political instability), through
which corruption can affect economic growth. Specifically, Mo. has made a model a regression
using the Corruption Perception Index of Transparency International, measuring variables of
three transmission channels, and other control variables. Using this method he shows that a unit
increase in the corruption index reduces the growth rate by about 0.545 percentage points (e.g.
the " general effect ") and that the most important variable is political instability, which is
responsible for 53 percent of "total" effect. Mo also includes instrumental variables in the model
(i.e., regional dummies and ethno - linguistic index) by analyzing in this way the negative impact

23
of corruption. Validity of instrumental variables, however, has not been tested Rock and Bonnett
(2004) analyzed and controlled the strength of conventional argument (i.e., the negative impact
of corruption on economic growth and investment), using four different indexes of corruption
and find similar negative effects of corruption on economic growth. (Rock and Bonnett 2004:
Tables 2-4). With much interest, they show that corruption in major industrialized economies of
East Asia (e.g., China, Indonesia, Korea, Thailand and Japan), significantly promote economic
growth (Rock and Bonnett 2004: Table 4). Their period of observation in their study differs, they
evaluated four different groups of regression for four different periods of time 1980- 83, 1988-
1992, 1984-1996 and 1994-1996" (Rock and Bonnett 2004:1005). Abed and Davoodi (2002)
have also modeled a standard regression. They use panel data and cross-sectional data for
Journal of Economic Development, Management, IT, Finance and Marketing, 25 countries over
the period 1994-98, and look at the role of corruption in transition economies. Compared with
other studies, their study uses data in a very short space of time and the results (Abed and
Davoodi,) show that higher growth is associated with lower corruption in the panel and cross-
sectional regression. But this effect is insignificant when the structural index is included in the
panel data, which can partially measure the impact of the level of government failure. In an
empirical study conducted by Mauro (1995) (and later in his study in 1997) he has revealed that
corruption lowers investments and reduces economic growth. However, in his study of 2007
Mauro noted that there are difficulties in measuring corruption and argues that the accumulated
data from different studies and questionnaires are subjective and not very appropriate. Mauros
findings and arguments were supported by Rahman, Ksiunko and Kaapor (2000), Mo (2001),
who analyzed variables such as investment, human capital and political instability, through
which corruption affects economic growth. Based on cross - sectional studies in the years 1970-
1985, he found that there is a negative impact on economic growth through transmission
channels. Mo decomposes the negative relationship through three transmission channels and
reveals that political instability is the most important variable. Kaufman and Wei (2000) support
the argument that corruption can lower economic efficiency. They show that bribes have a
negative impact on the cost of firm's capital. Similarly, Ali and Isse (2003) argue that a higher
corruption causes a reduction in economic growth. Countries experiencing high economic
growth are characterized by bureaucratic integrity and anti-corruption policies. Recently, Li and
Wu (2010) argue that corruption promotes or hinders the efficiency depending on the confidence

24
level of a country. Based on two cross - sectional analysis Li and Wu reveal that corruption has a
negative relationship with economic growth, while trust has a positive relation with growth. This
shows that the higher the level of trust, the less is the impact of corruption on economic growth.

2.6 Gaps from the Literature

The literature review viewed in this section is based on descriptive analyzes of corruption on a
country as well as showing empirical information on the types and rate corruption present.

In the study, the researchers will carry out empirical research in order to find numerical figures
about the level and the rate of corruption, the ways it has impact on the economic growth of
Somaliland with the reference to Good Governance And Anti-Corruption Commission
(GGACC) and Ministry of Trade and Investment.

In the context of Somaliland, no previous studies or research on the effect corruption has on the
economy has been carried out. The researchers will use primary and secondary data in the
country on corruption including the level of corruption in the public sector, the attitude of the
citizens, government and civil servant or knowledge of the citizens, government and civil
servants.

Finally, the objective that the researchers want to reach is to find solutions to eliminate
corruption to make the economy function effectively.

25
 CHAPTER THREE
METHODOLOGY

3.0 Introduction
This chapter outlines the methods that was used to collect primary data. It looks at the research
design, research, research population, sampling techniques, data collecting instruments, and
procedure of data collection, mode of data analysis and presentation as well as ethical
consideration and limitation of the study.

3.1 Research design

The research design that was used is descriptive design, due to collection of data with the help of
questionnaires with reference to Good Governance And Anti-Corruption Commission (GGACC)
and Ministry of Trade and Investment. At the same time, co-relation design was used in order to
show relationship between corruption and economic growth by creating graphical and numerical
data based on the data that will be collected.

3.2 Study Population

The thesis focuses on Investigation and Asset Tracing department, Legal Services department,
Research and Preventive Services department which include 50 employees according to Human
Resource in Good Governance And Anti-Corruption Commission (GGACC) as well as 57
employees from the departments of Finance, Planning and Investment & Commerce in the
Ministry of Trade and Investment. The reason of choosing these departments is because they
closely work with corruption and know much about the economy of Somaliland.

3.3 Sample size

These include the number of respondents that was questioned are 110 respondents which are
derived from Slovenes Formula:
n= N
1+N(e)2
These respondents were from the three departments of Good Governance And Anti-Corruption
Commission (GGACC) as well as from the Ministry of Trade and Investment mentioned above.

26
Table: 1 Distribution of Population per Each Department
No. Departments Population Sample size Sampling Procedures
1 Investigation and 15 15 Simple Random
Asset Tracing Sampling
2 Legal Services 20 20 Simple Random
Sampling
3 Research and 15 15 Simple Random
Preventive Sampling
Services
Total 50 50
Source: Adopted from Human Resource of Good Governance And Anti-Corruption
Commission (GGACC).

Table: 2 Distribution of Population per Each Department

No. Departments Population Sample Size Sampling Procedure
1 Finance 25 24 Simple Random
Sampling
2 Planning 15 14 Simple Random
Sampling
3 Investment & 20 19 Simple Random
Commerce Sampling
Total 60 57
Source: Adopted from Ministry of Trade and Investment

3.4 Sampling Procedures

The sampling procedure that was used is Simple random sampling within these three
departments of Good Governance And Anti-Corruption Commission (GGACC) and Ministry of
Trade and Investment.

The reason of choosing this procedure is in order to give employees equal chance of being
respondents and prevents the use of bias. These departments will be selected because of the in-
depth in knowledge and relation with corruption compare to other departments.

27
3.5 Research Instrument
Questionnaires were used in collecting the data that contain three parts. The first part was about
the demographic character of the respondents and then other questions will be related to the other
variables. Questionnaire was used because it avoids bias to take place.

3.6 Validity and Reliability

The validity of the questionnaire was justified by the supervisor as well as by carrying out the
content validity index by the researcher. The formula to be applied is:

CVI= Number of Questions declared Valid

Total number of questions in the Questionnaire

The CVI is less than 0.70

Reliability

The consistency of the questionnaire can be achieved by using Chronbach‘s Alpha and SPSS. It
can be also determined by giving the questionnaires to 10 employees in Good Governance And
Anti- Corruption (GGACC) and Ministry of Trade and Investment sample in order to determine
the questions objectives.

3.7 Data Gathering Procedures

Before Data Gathering

A letter of introductory was given from the faculty of Social Science in Gollis University to the
respondents in GGACC and Ministry of Trade and Investment. Next, the questionnaires was
designed by the researchers and checked with the help of the supervisor. Then, the researchers
were given appointment with GGACC and Ministry of Trade and Investment to carry out the
research.

During Data Gathering

28
Questionnaires was distributed to 15 employees in Investigation and Tracing department, 20
employees in Legal Service Department and for Research and Preventive Service Department 15
employees in Good Governance and Anti-Corruption Commission (GGACC) and for Ministry of
Trade and Investment, 20 employees in the Finance department, 15 employees in the Planning
department and 25 in the Investment & Commerce department. They were given two days‘ time
for the retrieval of the questionnaires. The questionnaires were checked if they are all answered.

After Data Gathering

The questionnaires were analyzed by using Statistical Package for Social Scientist (SPSS) which
help in creating frequencies and graphs charts.

3.8 Data Processing and Analysis

Data processing referred to editing, coding, tabulation and report formatting so that the
data to be used could be accurate and complete before the final analysis of data.
Editing; after collecting data from the field, the researcher will edit it by re-checking and
reading through all the field questionnaires in preparation for the analysis of the data. This will
enable the researcher to detect all the errors and omissions where possible.
Coding; this will refer to the process of assigning values or other symbols to the data so as to
create responses. In this case, the raw data will be coded with symbols that are used in entering
it to the Statistical Package for Social Sciences (SPSS) program for tabulation, coding is
essential for efficient analysis.
Tabulation; the researcher will arrange data in a logical and concise order for the purpose of
statistical analysis after sorting out and determining the number of tables that will be needed.
This helped the researcher to compare the findings from qualitative and quantitative responses.

3.9 Ethical consideration

To ensure utmost confidentiality for the respondents and the data provided by them as
well as reflect ethics practiced in this study the following will be done:

The researcher should protect the confidentiality of the respondents who take part in the
research. The respondents should be given a letter of informed consent regarding the study.

29
 They are also given the freedom to participate in the study.

The people used in this study will be recognized by using citations and references.

3.10 Limitations of the study

In view of the following threats to validity, the researchers claimed an allowable 5% margin of
error at 0.05 level of significance. Measures are also indicated in order to minimize if not to
eradicate the threats to the validity of the findings of this study.

Extraneous variables: These include factors that are out of the researchers control such as bias,
honesty and others.

Instrumentation: The retrieval of the questionnaires on time from the respondents.

30
 Chapter Four
PRESENTATION AND DISCUSSION OF THE STUDY RESULTS

Introduction
This chapter analysis and discusses the relationship between the effect of corruption on the
economic growth of Somaliland with reference to Ministry of Trade and Investment and Good
Governance and Anti- Corruption Commission.

The objective of the study is to analyze the level of corruption, the causes of corruption and the
impact corruption has on the economic growth.

The study hypothesized that there is no relationship between corruptions on the economic growth
of Somaliland.

Personal Data

This section deals with the identifying the socio-demographic characteristics of the respondents
which include the age, sex, marital status, educational level and experience level in Good
Governance And Anti-Corruption Commission( GGACC) and Ministry of Trade and Investment.
This is in order to identify the respondents opinion about the impact corruption has on the
economic growth of Somaliland.

Fig.1 Age of the respondents

31
Source Researcher (2016)

82% of the respondents are between the ages of 21-30, 20% are between the ages of 31-40, 10%
are between the ages of 41-50 and 0.2% is above the age of 50. This indicates that the employees
that work in Good Governance and Anti- Corruption Commission (GGACC) or Ministry of
Trade and Investment are youths which make up majority of Somaliland society.

Fig.2. Sex of the respondents

Source researchers (2016)

This bar chart shows that 45% of the respondents are female while 55% of the respondents were
male. This shows that male turnover is higher than females.

Fig.3. Marital Status of respondents

32
Source Researchers (2016)

The majority of the respondents are single which 60%, married are 24% are, divorce are 16%
while the widowed are 5% according to employees of Good Governance and Anti- Corruption
Commission (GGACC) and Ministry of Trade and Investment.

Fig.4. Educational Level

Source Researchers
(2016)

33
Majority of the respondents are 70% have a bachelor degree, 22% have diploma, 15% have
Master degree and above and lastly 6% have graduated Secondary level. This implies that
majority of the respondents are university graduates of Somaliland.

Fig.5. Experience level in Good Governance And Anti- Corruption Commission (GGACC)
or Ministry of Trade and Investment.

Source Researchers (2016)

The majority of respondents have 1-5 years of experience in Good Governance And Anti-
Corruption Commission (GGACC) or Ministry of Trade and Investment. This shows that they
have ideas about the level of corruption and its impact on the economic growth while 35% are
below 1 year, 20% are above 5 years of experienced.

34
The causes of Corruption and determination of its level.

This section deals about the causes of corruption and determine its level of each type of
corruption on the economy growth of Somaliland.

According to the hypothesis there is no relationship between corruption and economic growth .
This study shows the following report:

Table.4.1

Extremely High High Low Extremely Low

2.11-4.00 2.10-1.35 1.34-0.59 0-0.58
Source Researcher (2016)

Table.4.2.

Nepotism/Tribalism Mean
The use of tribalism can result in unqualified 1.82
employees
Tribalism is highly used at places of work 1.85
Tribalism has negative influence on the growth 2.04
of the economy.
Bribery
Bribery is highly used in government 1.21
institutions
Bribery is the most type of corruption practiced 2.10
Bribery is less used in less corrupted countries 1.89
Government Expenditure
Corruption increases government expenditure 1.89
among officials for personal gain
Government expenditure in public services 1.88
influences the economy
Government expenditure to public welfare can 1.77
contribute to lower poverty level
Income Inequality
High income inequality increases poverty 1.69
Employment can reduce the income inequality 1.84
Income inequality can lead to corruption 1.65
Source Researcher (2016)

35
As indicated by table 4.2, that bribery is the form of corruption that is highly used which is 2.10
(2.11-4.00). The reason is because it helps to facilitate things to be done much faster according to
GGACC. The lowest is that the corruption is used in government institutions which is 1.21 (1.34-
0.59), this indicates that corruption is also practiced in other sectors.

Table 4.3 showing the overall mean of corruption

Statistics
Corruption
N Valid 110
Missing 0
Mean 1.836

Source Researchers (2016)

This is the mean of corruption which indicates that the corruption level is high (2.10-1.35)
according to Good Governance and Anti- Corruption Commission (GGACC).

Economic Growth

This section is about the influence the Ministry of Trade and Investment has on the economic
growth of Somaliland. As far the hypothesis was concerned it stated that there was no relation
between corruption and economic growth. The study reveals the following report:

Table.4.3

Extremely High High Low Extremely Low

2.11-4.00 2.10-1.35 1.34-0.59 0-0.58
Source Researchers (2016)

36
Table4.4

Investment Mean
Investment has influence on GDP 1.40
High government expenditure in development 1.78
can increases investment
Corruption reduces investment 1.53
Employment
Employment reduces poverty 0.50
Bribery reduces the effectiveness of employees 1.72
Employees are chosen based on tribalism 1.94
Gross Domestic Product( GDP)
High employment level contributes to high 1.78
GDP
High GDP increases government expenditure 1.53
in public sector
Corruption lowers GDP 1.61
Poverty Reduction
Low income-inequality reduces poverty 2.02
Government expenditure in public has high 1.90
influence on the rate of poverty
The higher the corruption, the higher the 1.87
poverty level
Source Researchers (2016)

Low income-inequality reduces poverty has got the highest mean 2.02(2.10-1.35) which
indicates that reducing corruption that is being practiced, can lead to reducing the class
difference by distributing income in fair manner. Employment reduces poverty, got the lowest
mean (0.50) which was shows that employment does not necessary reduce poverty due to high
expenses of the city. This implies that the Ministry of Labour and Social Welfare should consider
creating minimum wage that is compatible with the living costs of the country which reduces the
large gap between the classes.

37
Table 4.7 showing the overall mean of economic growth

Statistics
Economic Growth
N Valid 110
Missing 0
Mean 1.237

Source Researchers (2016)

According to table 4.7, indicates that the mean of the economic growth is low 1.237 ( 1.34-
0.59)in relation to the scale from the data obtained from Ministry of Trade and Investment.

Table. 4.8 The Relationship between Corruption and Economic Growth

Correlations

Economic
Corruption Growth
**
Corruption Pearson Correlation 1 .694

Sig. (2-tailed) .000

N 110 110
**
Economic Growth Pearson Correlation .694 1

Sig. (2-tailed) .000

N 110 110

**. Correlation is significant at the 0.01 level (2-tailed).

Source Researchers (2016)

In analyzing the relationship between corruption and economic growth with reference to Good
Governance and Anti-Corruption Commission (GGACC) and Ministry of Trade and Investment,
a correlation coefficient method was used. The coefficient of correlation was r=0.694 which is
close to 1 and which is greater than -1, with a p-value = 0.000 which is less than alpha 0.01 the

38
reasonable level at which the two variables correlate. This indicates that there is a significantly
strong positive correlation between Corruption and Economic Growth.

Using the above results, the null hypothesis which stated that, ―there is no relationship between

corruption and economic growth with reference to Good Governance and Anti- Corruption

Commission (GGACC) and Ministry of Trade and Investment‖ was rejected and the alternate

hypothesis which states that, ―there is a significant relationship between corruption and

economic growth‖ was accepted.

39
CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

This chapter discusses the findings of the study and presents them in summaries, conclusions and
recommendations made based on the findings of each objective. The summary presents findings
from the study, its conclusions are then drawn from these findings and then recommendations are
eventually made.

The study sought to establish relationship between impact corruption and economic growth with
reference to Good Governance and Anti-Corruption Commission (GGACC) and Ministry of
Trade and Investment.

SUMMARY

The study based on 110 respondents who were randomly selected among workers Good
Governance and Anti- Corruption Commission and Ministry of Trade and Investment.

The researchers used descriptive design which involved qualitative research method to carry out
of the study and questionnaire the main tool of collection of data from field.

Hypothesis of the study was: there is no relationship between impact corruption and economic
growth with reference to GGACC and ministry trade and investment in Hargeysa, Somaliland.

82% of the respondents are between the ages of 21-30, 20% are between the ages of 31-40, 10%
are between the age of 41-50 and 0.2% is above the age of 50. This indicates that the employees
that work in Good Governance and Anti- Corruption Commission (GGACC) are Ministry of
Trade and Investment are youths which make up majority of Somaliland society.

It also shows the sex of respondents are 45% female while 55% male this shows that majority in
work place are male dominated by female in Somaliland

The majority of respondents have 1-5 years of experience in Good Governance And Anti-
Corruption Commission (GGACC) or Ministry of Trade and Investment. This shows that they

40
have ideas about the level of corruption and its impact on the economic growth while 35% are
below 1 year, 20% are above 5 years of experienced.

In analyzing the relationship between corruption and economic growth with reference to Good
Governance and Anti-Corruption Commission (GGACC) and Ministry of Trade and Investment,
a correlation coefficient method was used. The coefficient of correlation was r=0.694 which is
close to 1 and which is greater than -1, with a p-value = 0.000 which is less than alpha 0.01 the
reasonable level at which the two variables correlate. This indicates that there is a significantly
strong positive correlation between Corruption and Economic Growth.

Using the above results, the null hypothesis which stated that, ―there is no relationship between
corruption and economic growth with reference to Good Governance and Anti- Corruption
Commission (GGACC) and Ministry of Trade and Investment‖ was rejected and the alternate
hypothesis which states that, ―there is a significant relationship between corruption and
economic growth‖ was accepted.

Conclusion

Basically on the findings summary and conclusion are made:

The causes and level of corruption suggests that bribery is the form of corruption that is

highly used in government institutions according to Good Governance and Anti-Corruption

Commission (GGACC) which indicates a mean of 2.10.

As for the level of economic growth, low-income inequality reduces poverty got the

highest mean which is 2.02. This is due to the fact that reducing corruption that is being

practiced, can lead to reducing the class difference by distributing income in fair manner.

41
 Most of the employees have 1-5 years of experiences which shows that the employees are
aware about the level of corruption and its impact on the economic growth while 35% are below
1 year, 20% are above 5 years of experienced.

Recommendations

Basing on the findings of the study and the summaries, the conclusions and the
suggestions from the respondents, the following recommendations are necessary.

For the Ministry of Trade and Investment in creating monitoring systems to tackle
corruption which damages the economy.

For Good Governance And Anti-Corruption Commission (GGACC) to create new

strategies to tackle corruption.

For policy makers of the country to enhance transparency and accountability.

For the Ministry of Labour and Social Welfare to create minimum wage to help face the
life expenses which help to reduce corruption.

To correct system of selection of employee and to take qualified employees.

Ensure an equitable distribution of investment.

42
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44
Appendix I

INTRODUCTION LETTER FOR THE RESPONDENTS.

Dear Respondent,
Farah Yusuf and Yasmeen Hassan are students of Gollis University pursuing a Bachelor degree
in Social Work and Political Science , and undertaking research on “The Impact of Corruption
on Economic Growth ( Case study in Good Governance And Anti-Corruption Commission
(GGACC) and Ministry of Trade and Investment) in Hargeisa, Somaliland”
The researchers kindly request you to assist as completing this questionnaire as accurate as
possible. This will only take 5-7 minutes. The information you will give is for academic
purposes and should be treated with strict confidentiality.

SECTION A: PROFILE OF RESPONDENTS

Kindly tick [√] in the blank boxes, the items that best describe your choice for each question

1. Age of the respondents:

21- 30 years 31-40 years
41-50 years above 50 years
2. Sex:
Male Female
3. Marital status:
Single Married Divorced Widowed
4. Educational Level:
Secondary level Certificate Bachelor Master & Above

5. Experience level in GGACC or Ministry of Trade and Investment:

Below 1 year 1-5 years above 5 years

45
 APPENDIX II

Questionnaire to examine the impact of corruption on economic growth of Somaliland (by

Good Governance And Anti-Corruption Commission and Ministry of Trade and
Investment)
Please read each of the following statements carefully and select the scale that best describes you
Please tick (√) in the box provided basing the scale provided below.
Response Mode Rating Description
Strongly Agree 1 You agree with no doubt at all.
Agree 2 You agree with some doubt
Disagree 3 You disagree with some doubt
Strongly Disagree 4 You disagree with no doubt at all

Corruption S.A A D SDA

1 2 3 4
Nepotism/Tribalism
1 The use of tribalism can result in unqualified
employees

2 Tribalism is highly used at places of work

3 Tribalism has negative influence on the growth of

the economy
Bribery
4 Bribery is highly used in government institutions

5 Bribery is the most type of corruption practiced.

6 Bribery is less used in less corrupted countries
Government expenditures
6 Corruption increases government expenditure
among officials for personal benefit
7 Government expenditure in public services
influences the economy
8 Government expenditure to public welfare can
contribute to lower poverty level

46
Income Inequality
9 High income inequality increases poverty
10 Employment can reduce the income inequality

11 Income inequality can lead to corruption

47
 APPENDIX III

QUESTIONNAIRE TO DETERMINE THE ECONOMIC GROWTH OF SOMALILAND

Economic Growth S.A A DA A

1 2 3 4

Investment
1 Investment increases the economic growth

2 High government expenditure in development can

increases investment

3 Corruption reduces investment

Employment
4 Employment reduces poverty

5 Bribery reduces the effectiveness of employees

6 Employees are chosen based on tribalism

Gross Domestic Product (GDP)

7 Investment and employment effects the GDP

8 High GDP increases government expenditure in public

sector
9 Corruption lowers GDP

Poverty Reduction
10 Poverty increases the use of tribalism to get job
11 Government expenditure in public has high influence
on the rate of poverty
12 Higher the poverty level, higher the corruption

48