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The Persistence of Corruption and Regulatory Compliance Failures: Theory and Evidence

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Author Info
Richard Damania
Per Fredriksson ()
Muthukumara Mani

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Abstract

This paper examines the reasons whycorruption and policy distortions tend toexhibit a high degree of persistence incertain regimes. We identify circumstancesunder which a firm seeks to evaderegulations through (i) bribery of localinspectors, and (ii) by lobbying high-levelgovernment politicians to resist legalreforms designed to improve judicialefficiency (rule of law) and eliminatecorruption. We show that in some casespolitical instability reinforces thesetendencies. The analysis predicts that inpolitically unstable regimes, theinstitutions necessary to monitor andenforce compliance are weak. In suchcountries, corruption therefore is morepervasive, and the compliance withregulations is low. We test thesepredictions using cross-country data. Theempirical results support the predictionsof the model. Political instability reducesjudicial efficiency, which in turnstimulates corruption. Thus, the effect ofpolitical instability on corruption is notdirect, but occurs indirectly via itseffect on the degree of judicialefficiency. Finally, corruption lowers thelevel of regulatory compliance. Thus,political instability indirectly affects compliance, via judicial efficiency andcorruption. Copyright Kluwer Academic Publishers 2004

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Publisher Info
Article provided by Springer in its journal Public Choice.

Volume (Year): 121 (2004)
Issue (Month): 3 (February)
Pages: 363-390
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Handle: RePEc:kap:pubcho:v:121:y:2004:i:3:p:363-390

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References listed on IDEAS
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    Other versions:
  5. Basu, Kaushik & Bhattacharya, Sudipto & Mishra, Ajit, 1992. "Notes on bribery and the control of corruption," Journal of Public Economics, Elsevier, vol. 48(3), pages 349-359, August. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nauro F. Campos & Francesco Giovannoni, 2008. "Lobbying, Corruption and Other Banes," CEDI Discussion Paper Series 08-16, Centre for Economic Development and Institutions(CEDI), Brunel University. [Downloadable!]
    Other versions:
  2. Kina Chenard & Udaibir S. Das & Marc Quintyn, 2004. "Does Regulatory Governance Matter for Financial System Stability? An Empirical Analysis," IMF Working Papers 04/89, International Monetary Fund. [Downloadable!]
  3. Nauro Campos & Francesco Giovannoni, 2007. "Lobbying, corruption and political influence," Public Choice, Springer, vol. 131(1), pages 1-21, April. [Downloadable!] (restricted)
    Other versions:
  4. Fredriksson, Per G. & Mani, Muthukumara & Wollscheid, Jim R., 2006. "Environmental federalism : a panacea or Pandora's box for developing countries?," Policy Research Working Paper Series 3847, The World Bank. [Downloadable!]
  5. Kate Ivanova, 2007. "Corruption, illegal trade and compliance with the Montreal Protocol," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 38(4), pages 475-496, December. [Downloadable!] (restricted)
  6. Langbein, Laura & Knack, Stephen, 2008. "The worldwide governance indicators and tautology : causally related separable concepts, indicators of a common cause, or both ?," Policy Research Working Paper Series 4669, The World Bank. [Downloadable!]
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