On the Impact of Digital Technologies on Corruption: Evidence from U.S. States and Across Countries
AbstractWe hypothesize that the spread of the Internet has reduced corruption, chiefly through two mechanisms. First, the Internet facilitates the dissemination of information about corrupt behavior, which raises the detection risks to shady bureaucrats and politicians. Second, the Internet has reduced the interface between bureaucrats and the public. Using cross-country data and data for the U.S. states, we test this hypothesis. Data spans the period during which the Internet has been in operation. In order to address the potential endogeneity problem, we develop a novel identification strategy for Internet diffusion. Digital equipment is highly sensitive to power disruption: it leads to equipment failure and damage. Even very short disruptions (less than 1/60th of a second) can have such consequences. Accordingly, more frequent power failures will increase the user cost of IT capital; either directly, through depreciation, or indirectly, through the costs of protective devises. Ceteris paribus, we expect that higher IT user costs will lower the speed of Internet diffusion. A natural phenomenon which causes a major part of annual power disruptions globally is lightning activity. Lightning therefore provides exogenous variation in the user cost of IT capital. Based on global satellite data from the U.S. National Aeronautics and Space Administration (NASA), we construct lightning density data for a large cross section of countries and for the U.S. states. We demonstrate that the lightning density variable is a strong instrument for changes in Internet penetration; and we proceed to show that the spread of the Internet has reduced the extent of corruption across the globe and across the U.S. The size of the impact is economically and statistically significant.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 08-11.
Length: 25 pages
Date of creation: Apr 2008
Date of revision:
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public corruption; internet; information;
Find related papers by JEL classification:
- K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
- H0 - Public Economics - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-10 (All new papers)
- NEP-ICT-2008-05-10 (Information & Communication Technologies)
- NEP-LAW-2008-05-10 (Law & Economics)
- NEP-REG-2008-05-10 (Regulation)
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- Goel, Rajeev K. & Nelson, Michael A. & Naretta, Michael A., 2012. "The internet as an indicator of corruption awareness," European Journal of Political Economy, Elsevier, vol. 28(1), pages 64-75.
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