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Live free or bribe: On the causal dynamics between economic freedom and corruption in U.S. states

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  • Apergis, Nicholas
  • Dincer, Oguzhan C.
  • Payne, James E.

Abstract

We investigate the relationship between economic freedom and corruption using data from U.S. states covering almost a quarter of a century. Our study advances the existing literature on several fronts. First, instead of using subjective cross-country corruption indices assembled by various investment risk services, we use a more objective measure of corruption: the number of government officials convicted in a state for crimes related to corruption. Second, unlike previous studies, we exploit both time series and cross-sectional variation in the data in the estimation of a panel error correction model. The panel error correction model results show that in the long-run economic freedom, per capita income, and education have a negative and statistically significant impact on corruption whereas income inequality has a positive and statistically significant impact. The causality tests associated with the panel error correction model reveal bidirectional causality between economic freedom and corruption in both the short-run and long-run.

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 28 (2012)
Issue (Month): 2 ()
Pages: 215-226

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Handle: RePEc:eee:poleco:v:28:y:2012:i:2:p:215-226

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Web page: http://www.elsevier.com/locate/inca/505544

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Keywords: Economic freedom; Corruption; Panel error correction model;

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