A 2007 study by a professor at the Graduate School of Business has revealed that corruption can have debilitating effects on a nation’s businesses, reducing efficiency and slowing economic growth.

Although other work in the field has already demonstrated that increased corruption leads to macroeconomic drags such as a decreased saving rate, the study is the first to show its negative effects in terms of “technical inefficiency of firms,” said Ernesto Dal Bo, a professor at the Graduate School of Business and co-author of the study.

“We are the first to show that corruption damages the ability of firms to create wealth,” he said.

The paper, which was co-authored by Martin Rossi of Argentina’s Universidad de San Andres, compared the efficiency of electrical companies in Latin America and the level of corruption in the firm’s country as measured by international monitoring organizations.

To determine the “efficiency” of the electrical companies, the researchers analyzed a wide variety of data, including employees, kilowatt-hours of energy generated, transformer capacity and network size and density for more than 90 firms across Latin America.

Dal Bo and Rossi discovered that in countries with high levels of corruption, firms employ more workers than similar firms in countries where corruption is less of a problem.

Highlighting the firm’s employment levels was illuminating because in the utilities industry, “the capital inputs are pretty much fixed,” over relatively short periods of time, Dal Bo said. “The main determinant of efficiency is how well you’re using your labor.”

The increased numbers of employees in corrupt positions represent wasted productivity, sapping national wealth and driving down important statistics like GDP per capita, according to Dal Bo.

“More corrupt countries and countries that get more corrupt over time are associated with firms that get worse at what they do,” he said.

While uncommon in the United States, bribery and other crooked dealings between government officials and private citizens and companies remains a worldwide problem — in a 2007 report by the monitoring organization Transparency International, 81 countries were found to have corruption scores of three or less on a scale of zero to 10, with 10 being squeaky clean.

“When a country has a score of three or less,” Dal Bo said, “corruption is a very serious issue.”

Although Dal Bo and Rossi began the study more than six years ago, when both were students at Oxford, Dal Bo said that “most of the work was done while we both were in different places.” Despite the distance, the cross-continental joint project was facilitated by Internet database sharing and email communication.

The researchers expressed hope that the study’s findings, published in the Journal of Public Economics, would spur further efforts by governments to combat corruption.

“My hope is that this contributes to having people taking corruption very seriously as one factor in damaging development and living standards,” Dal Bo said. “We didn’t quite know where the tragedy happens. The tragedy happens at the places where we create wealth, and that is firms.”