Corruption: what are the effects on government effectiveness? Empirical evidence considering developed and developing countries

Abstract

This study analyses the impact of corruption on government effectiveness for a sample of 130 countries. The findings suggest that less-corrupt countries have better quality of public service, better quality in the formulation and adoption of policies and greater credibility and government's commitment to such policies. The findings also suggest that the effect of corruption on government effectiveness is higher in developed countries. Moreover, the estimates also reveal that countries with the most indebted governments and with higher inflation rates have less-efficient governments, and an increase in rule of law represents a good strategy to improve government effectiveness. In turn, regarding developing countries, the findings show that countries with more democratic regimes have a higher degree of government effectiveness.

Keywords:

• Corruption
• government effectiveness
• democracy
• inflation
• public debt

JEL Classification:

• D73
• H11

Notes

¹ A summary of empirical studies on the impact of corruption on the economy is presented in Akçay (2006).

² See Table A.1 in the Appendix for the list of countries. The division is made taking into consideration the classification made by the International Monetary Fund (IMF).

³ The TI’s corruption perception index captures perceptions of overall corruption among public officials and politicians. The WGI's corruption index captures the perceptions of the extent to which the public workers or officials in a country abuse their public power for their private interests, including both grand and petty corruption. Grand corruption involves senior officials, ministers and heads of state and petty corruption entails immigration officials, customs clerks, policemen and so on.

⁴ The same correlations were found for the other samples (developed and developing countries).