Corruption

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THE CAUSES OF CORRUPTION: A CROSS-NATIONAL STUDY

Why is corruption—defined here as the misuse of public office for private gain—perceived to be more widespread in some countries than others? Different theories associate cross-national variation in the extent of corruption with particular historical and cultural traditions, levels of economic development, political institutions, and government policies. This paper analyzes which of various plausible determinants are significantly related to an index of “perceived corruption” compiled from business risk surveys for the mid-1990s. Using 2SLS to reduce problems of endogeneity and a variation of Leamer’s “extreme bounds analysis” to test for robustness, it finds three factors robustly significant. Countries that were more economically developed and those which are former British colonies were rated “less corrupt”. Those which have a federal structure were “more corrupt”.

Daniel Treisman Assistant Professor Department of Political Science University of California, Los Angeles 4289 Bunche Hall LA CA 90095-1472 Treisman@polisci.ucla.edu

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First Draft September 1997 Revised April 1998

I. INTRODUCTION Why is corruption—defined here as the misuse of public office for private gain—perceived to be more widespread in some countries than others?1 Understanding this is important for several reasons. Corruption has been blamed for the failures of certain “developing” countries to develop, and recent empirical research has confirmed a link between higher perceived corruption and lower investment and growth (Mauro 1995; World Bank 1997). Political scandals have sparked public outrage against political corruption in countries across the globe during the last few years, and in every continent at least one incumbent regime has been forced out of office under a cloud. At the same time, corruption is viewed as one of the main obstacles that post-communist countries face in attempting to consolidate democratic institutions and open, market economies (Shleifer 1997). Yet very little is known conclusively about what causes corruption to be higher in one place than another. While theories abound, and while numerous case studies have examined the details of corruption in particular countries or regions, cross-national comparative empirical studies are much rarer. The difficulty of measuring levels of relative corruption in different countries has presented a major obstacle. However, economists and political scientists have recently begun to analyze indexes of “perceived” corruption prepared by business risk analysts and monitoring agencies, based on survey responses of business people and local residents.2 While such ratings are by definition “subjective”, there are compelling reasons to be interested in the patterns they reveal. First, such cross-national ratings tend to be highly correlated with each other and highly correlated across time. Different organizations using independent techniques derive ratings which are quite similar and which do not change much from year to year. Ratings of relative corruption constructed from surveys of expatriate business people also turn out

1

Acknowledgments to follow.

2

For a few examples of use of perceived corruption indexes, see Mauro 1995, La Porta et al. 1997, Easterly and Levine 1997.

CORRUPTION\2

to be highly correlated with at least one Gallup poll of the relevant countries’ inhabitants. This reduces the fear that one is analysing not perceptions of corruption but the quirks or bias of a particular monitoring organization. Second, as empirical work confirms, whatever the objective characteristics of a country’s political and social system, subjective evaluations of corruption do themselves appear to influence investment decisions, growth, and the political behavior of citizens (Mauro 1995). This paper uses an index of perceived corruption prepared by the organization Transparency International to assess the explanatory...
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