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Does democracy reduce corruption?

  • Ivar Kolstad
  • Arne Wiig

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.

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File URL: http://www.cmi.no/publications/file/4315-does-democracy-reduce-corruption.pdf
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Paper provided by CMI (Chr. Michelsen Institute), Bergen, Norway in its series CMI Working Papers with number 4.

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Length: 29 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:chm:wpaper:wp2011-4
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  1. Bin Dong & Benno Torgler, 2011. "Democracy, Property Rights, Income Equality, and Corruption," Working Papers 2011.08, Fondazione Eni Enrico Mattei.
  2. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "The Quality of Government," Working Paper 19452, Harvard University OpenScholar.
  3. 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.
  4. 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.
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