In this piece, Dr Rasha Kassem, Senior Lecturer in Accounting and Leader of the Fraud Research Group at Aston University, highlights recent social science research which shows that fraud is not simply a legal problem but a structural challenge for economic growth.
Fraud: A hidden barrier to economic growth
Fraud is often seen as a matter of individual wrongdoing, but its consequences extend far beyond corporate boardrooms and courtrooms. When it becomes widespread, fraud distorts markets, misallocates resources, and erodes trust—the very foundations on which sustainable economic growth depends. Far from being a side issue, fraud represents a hidden barrier to development, quietly undermining the progress that economic policies aim to achieve.
How Fraud Drains Economies
Research shows that fraud damages economies in multiple ways. The most visible cost is the immediate financial loss suffered by victims. Individuals may lose their savings, businesses can face setbacks or bankruptcy, and governments deprived of tax revenue or defrauded through contracts have less to invest in public services such as healthcare or infrastructure.
But the damage runs deeper. Fraud erodes public trust in financial institutions and markets. Investors pull back, consumers grow cautious, and capital may even flee to safer havens. Governments often respond with tighter regulation—necessary to restore confidence, but costly. Compliance demands raise operating costs for financial institutions, which are passed on to consumers, while investigations and prosecutions divert public resources away from other priorities. High-profile fraud cases also generate uncertainty, discouraging investment and job creation. And because fraud frequently crosses borders, its effects ripple internationally, complicating enforcement and undermining global investment flows.
Taken together, these mechanisms reveal the true economic weight of fraud: it diverts resources from productive use, discourages investment, and weakens the foundations of long-term growth.
Evidence from Different Contexts
These impacts are not confined to theory. Across countries and sectors, research consistently shows how fraud undermines development.
Africa-wide financial crimes: A regional study found that financial crimes from cyber fraud and Ponzi schemes to corruption have risen sharply, particularly in West, Southern, and East Africa. Driven by poverty, unemployment, and weak institutions, these crimes reduce trust in markets, drain public resources, and divert capital away from productive investment, creating a significant drag on the continent’s growth prospects.
SMEs in Ghana: Small and medium-sized enterprises (SMEs) are the backbone of most developing economies, yet in Ghana, fraud is a major obstacle to their expansion. A study of 250 SMEs in Accra showed that internal fraud, especially accounting fraud, severely constrains business growth. Other common issues such as theft, fake currency, and non-payment for goods accounted for more than 80% of fraud cases. The result is weakened firms, fewer jobs, and reduced social stability—evidence that combating fraud in SMEs is not just a business priority but a development imperative.
South Africa’s BEE policy: Designed to undo the inequalities of apartheid and foster inclusive growth, the Black Economic Empowerment (BEE) policy created new opportunities for black entrepreneurs. Yet the system has been exploited: fraudulent BEE credentials and corrupt practices have distorted competition, discouraged investment, and misallocated resources. Instead of accelerating transformation, fraud has slowed it down. Researchers argue that the challenge lies not in the policy itself, but in the governance and oversight required to prevent rent-seeking.
Food fraud in Italy: The costs of fraud can be precisely measured. A study of Italy’s agri-food sector estimated that fraudulent practices such as mislabelling, and adulteration result in losses of up to €1.8 billion in output and 20,000 jobs per year. Agriculture was hit hardest, particularly in high-value sectors like wine, olive oil, and cheese. Although such practices may generate short-term activity, their overall effect is contractionary, as they divert resources into unproductive, rent-seeking activities. The lesson is clear: fraud erodes both sectoral competitiveness and national growth. But this isn’t an Italy-only problem. Globally, food fraud is a growing concern. Researchers estimate that food fraud affects about 1% of the global food industry, with annual losses ranging from US$10–15 billion, and some estimates pushing that figure to US$40 billion per year.
Cross-country evidence on corruption: Large-scale studies provide further confirmation. One analysis found a consistent negative correlation between corruption and long-term economic growth, as well as reduced levels of foreign investment. Crucially, these results held across different countries, time periods, and corruption indices. The implication is straightforward: reducing corruption reliably boosts both national wealth and investment flows.
The UK case: Fraud is not confined to developing economies. The UK’s Annual Fraud Indicator estimates that fraud costs the country around £219 billion per year—a figure larger than government spending on several major services. These losses directly undermine consumer spending, business revenues, and public service provision, showing that fraud’s economic toll is structural, not marginal.
Beyond Finance: Fraud in Public Systems
Fraud’s economic consequences are not limited to markets and firms. Corruption within public systems can be equally damaging. In the health sector, for example, corruption undermines the capacity of systems to deliver essential services, weakening population health and economic productivity. Research stresses that anti-corruption measures must be part of health system strengthening and a prerequisite for achieving universal coverage. When fraud erodes such critical institutions, it undermines both immediate service delivery and the long-term foundations of growth.
The Way Forward
The evidence is clear: fraud is not a marginal issue but a hidden barrier to economic growth. It is a global problem, affecting every sector in ways that are strikingly similar across borders. Because fraud crosses jurisdictions and undermines international trade, investment, and cooperation, no country can tackle it alone.
Addressing this challenge requires a holistic and collective approach. Stronger governance and regulation remain essential, but they must be complemented by robust business practices, active civil society oversight, and international collaboration. Education and awareness also matter, empowering individuals and communities to recognise and resist fraud builds resilience from the ground up.
Fraud will never be eliminated entirely, but it can be contained and its economic impact reduced. By treating fraud not only as a legal issue but as a global development challenge, societies can unlock growth that is more sustainable, inclusive, and trustworthy. Including through further social science research, we should continue to explore effective, evidence-based solutions for tackling fraud. It’s a key part of achieving the economic growth the UK needs.
About the author
Dr Rasha Kassem is a Senior Lecturer in Accounting and Leader of the Fraud Research Group at Aston University. She has over 16 years of experience in Higher Education, specialising in research on fraud, corruption, cybercrime, governance, and audit across various sectors including private, public, and voluntary. Additionally, Rasha researches technology, sustainability, CSR, and pedagogy.
Photo credit: Joshua Hoehne on Unsplash