Corruption in the Agriculture Sector - Micro Level Evidence from Bangladesh

Abstract

In Bangladesh, the fertilizer market is the main source of corruption in the agriculture sector. Market imperfection allows the input dealers to extract extra benefit from the market through selling fertilizer at higher than government declared price, and the benefit is positively correlated with market restriction. Bribery or unauthorized payment in the fertilizer market negatively affects farm profit. Empirical evidence shows that restricted fertilizer markets encourage corruption, as bribe-paying farmers can acquire their required fertilizer and thus operate at a higher efficiency level than their counterparts who do not pay bribes. Alternatively, in markets where sufficient supply is available and farmers face liquidity constraints, corruption further restricts farmers to collecting their optimal input bundle and ultimately reduces efficiency. Nepotism and negligence of duty are the two most common form of corruption in the extension service. Along with identifying several key causes of corruption, this article suggests some interventions to combat corruption.