On the Waterfront: an Empirical Study of Corruption in Ports

Abstract: This paper investigates how bureaucrats set bribes and whether these payments impose significant economic costs. We generate an original dataset on bribe payments at ports in Southern Africa that allows us to take an unusually close look into the blackbox of corruption. We find that bribes are product-specific, frequent and substantial. Bribes can represent up to a 14% increase in total shipping costs for a standard 20ft container and a 600% increase in the monthly salary of a port official. Bribes are paid primarily to evade tariffs, protect cargo on the docks and avoid costly storage. We identify three systemic effects associated with this type of corruption: a "diversion effect" where firms go the long way around to avoid the most corrupt port; a "revenue effect" as bribes reduce overall tariff revenue; and a "congestion effect" as the re-routing of firms increases congestion and transport costs in the region by generating imbalanced flows of cargo in the transport network. The evidence supports the theory that bribe payments at ports represent a significant distortionary tax on trade, as opposed to just a transfer between shippers and port officials that greases slow-moving clearing queues.