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Does Financial Development Reduce Corruption?


  • John Thornton

    () (Bangor Business School)


I estimate the impact of bank cred it to the private sector on corruption using indicators of a country's legal origin as instrumental variables to assess causality. I find that bank credit reduces corruption, with the result robust to instrumenting for bank credit and for different controls.

Suggested Citation

  • John Thornton, 2009. "Does Financial Development Reduce Corruption?," Working Papers 09003, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  • Handle: RePEc:bng:wpaper:09003

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    References listed on IDEAS

    1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    2. Alesina, Alberto & Devleeschauwer, Arnaud & Easterly, William & Kurlat, Sergio & Wacziarg, Romain, 2003. "Fractionalization," Journal of Economic Growth, Springer, vol. 8(2), pages 155-194, June.
    3. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Governance matters," Policy Research Working Paper Series 2196, The World Bank.
    4. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series,in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084 Central Bank of Chile.
    5. Daniel Lederman & Norman V. Loayza & Rodrigo R. Soares, 2005. "Accountability And Corruption: Political Institutions Matter," Economics and Politics, Wiley Blackwell, vol. 17, pages 1-35, March.
    6. Tavares, Jose, 2003. "Does foreign aid corrupt?," Economics Letters, Elsevier, vol. 79(1), pages 99-106, April.
    7. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    8. Sanjeev Gupta & Hamid Davoodi & Rosa Alonso-Terme, 2002. "Does corruption affect income inequality and poverty?," Economics of Governance, Springer, vol. 3(1), pages 23-45, March.
    9. Danila Serra, 2006. "Empirical determinants of corruption: A sensitivity analysis," Public Choice, Springer, vol. 126(1), pages 225-256, January.
    10. Mauro, Paolo, 1998. "Corruption and the composition of government expenditure," Journal of Public Economics, Elsevier, vol. 69(2), pages 263-279, June.
    11. repec:hrv:faseco:30747160 is not listed on IDEAS
    12. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    13. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
    14. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May.
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    Cited by:

    1. Yenner Altunbas & John Thornton & Chrysovalantis Vasilakis, 2015. "More foreign aid, less financial development," Working Papers 15007, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    2. Joël CARIOLLE, 2014. "Corruption in Turbulent Times: a Response to Shocks?," Working Papers P106, FERDI.
    3. Joël CARIOLLE, 2014. "Corruption in Turbulent Times: a Response to Shocks?," Working Papers P106, FERDI.
    4. Joël CARIOLLE, 2016. "The voracity and scarcity effects of export booms and busts on bribery," Working Papers P146, FERDI.
    5. Vishal Jaunky, 2013. "Democracy and economic growth in Sub-Saharan Africa: a panel data approach," Empirical Economics, Springer, vol. 45(2), pages 987-1008, October.
    6. Jha, Chandan Kumar, 2015. "Financial Reforms and Corruption," MPRA Paper 65420, University Library of Munich, Germany.

    More about this item


    : Financial development; Corruption ; Instrumental Variables;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies


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