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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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    File URL: https://www.cmi.no/publications/file/4315-does-democracy-reduce-corruption.pdf
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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," 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 Equalilty, and Corruption," School of Economics and Finance Discussion Papers and Working Papers Series 262, School of Economics and Finance, Queensland University of Technology.
    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. 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.
    2. 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.
    3. Gregmar Galinato, "undated". "The Challenge of Addressing Consumption Pollutants with Fiscal Policy," Working Papers 2014-1, School of Economic Sciences, Washington State University.

    More about this item

    Keywords

    Democracy; corruption; conflict; endogeneity;

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