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Does democracy reduce corruption?

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  • Ivar Kolstad
  • Arne Wiig

Abstract

While democracy is commonly believed to reduce corruption, there are obvious endogeneity problems in measuring the impact of democracy on corruption. This paper addresses the endogeneity of democracy by exploiting the common observation that democracies seldom go to war against each other. We instrument for democracy using a dummy variable reflecting whether a country has been at war with a democracy in the period 1946-2009, while controlling for the extent to which countries have been at war in general. We find that democracy to a significant extent reduces corruption, and the effect is considerably larger than suggested by estimations not taking endogeneity into account. Democracy is hence more important in combating corruption than previous studies would suggest.

Suggested Citation

  • Ivar Kolstad & Arne Wiig, 2011. "Does democracy reduce corruption?," CMI Working Papers 4, CMI (Chr. Michelsen Institute), Bergen, Norway.
    • Handle: RePEc:chm:wpaper:wp2011-4
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    References listed on IDEAS

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    1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    2. Brunetti, Aymo & Weder, Beatrice, 2003. "A free press is bad news for corruption," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1801-1824, August.
    3. Bin Dong & Benno Torgler, 2010. "Democracy, Property Rights, Income Equality, and Corruption," CREMA Working Paper Series 2010-23, Center for Research in Economics, Management and the Arts (CREMA).
    4. Mehmet Bac, 2001. "Corruption, Connections and Transparency: Does a Better Screen Imply a Better Scene?," Public Choice, Springer, vol. 107(1), pages 87-96, April.
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    Cited by:

    1. Galinato, Gregmar I. & Islam, Asif, 2017. "The challenge of addressing consumption pollutants with fiscal policy," Environment and Development Economics, Cambridge University Press, vol. 22(5), pages 624-647, October.
    2. Suzuki, Taku & Mizobata, Satoshi, 2019. "Social Confusion and Corruption: Investigating the Causes and Effects of a Breakdown of Ethics," Discussion Paper Series 690_v2, Institute of Economic Research, Hitotsubashi University.
    3. Dutta, Nabamita & Roy, Sanjukta, 2016. "The interactive impact of press freedom and media reach on corruption," Economic Modelling, Elsevier, vol. 58(C), pages 227-236.
    4. Ivar Kolstad & Arne Wiig & Vincent Somville, 2014. "Devolutionary delusions? The effect of decentralization on corruption," CMI Working Papers 10, CMI (Chr. Michelsen Institute), Bergen, Norway.
    5. Nedra Baklouti & Younes Boujelbene, 2018. "Moderation of the Relationship Between Size of Government and Corruption by Democracy," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 9(4), pages 1210-1223, December.
    6. Olalekan Charles Okunlola, 2019. "Political Regime Types and Economic Development in Nigeria: Significance of Conflict and Corruption," Journal of Interdisciplinary Economics, , vol. 31(2), pages 183-216, July.

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    Keywords

    Democracy; corruption; conflict; endogeneity;
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