Determinants of Economic Corruption: A Cross-Country Comparison

Abstract

In recent years, the detrimental effects of bureaucratic corruption gained attention from development economists as well as interna-tional financial institutions and policymakers. Corruption, which was previously ignored and mentioned only with caution, has taken a center stage. Nonetheless, corruption is not a new phenomenon. It is as old as government itself. The current literature on corruption high-lights its harmful effects on growth (see Klitgaard 1988, Shleifer and Vishny 1993, Mauro 1995, Cheung 1996, and Bardhan 1997). How-ever, until recently the growth literature did not adequately explain why corruption is low in some countries and endemic in others.1 The relevant analytical problem is not to assess the harmfulness of cor-ruption but why different political systems foster different levels of corruption. We cannot discern any useful prognosis from the litera-ture on corruption so long as the causes of corruption are not clearly identified. Moreover, the empirical studies on the effects of corrup-tion on economic growth are besieged by endogeneity problems. Few of these empirical studies take into account the possibility that eco-nomic growth or the lack of it can increase or decrease the level of corruption. This article seeks to fill that gap by identifying the determinants of corruption and by examining the extent to which those factors—such as education, political regimes, the type of the state, ethnicity, judicial

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