Political uncertainty and international corruption

ABSTRACT

This article uniquely considers influences of political uncertainty on corruption. Political uncertainty disturbs existing corrupt (and legal) contractual relations inducing greater corrupt activity to strengthen existing alliances and foster new ones. Results across two measures of cross-national corruption show that political assassinations increase corruption in different variations and time periods, and a general index of political instability mostly has the same effect. The influences of other factors on corruption are in general accord with the literature. These findings are generally robust to consideration of alternate dimensions of political uncertainty.

KEYWORDS:

• Corruption
• political instability
• uncertainty
• assassinations

JEL CLASSIFICATION:

• K40
• H11

Acknowledgment

We thank a referee for useful comments.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ In contrast, Campante, Chor, and Do (2009) have a different take with political incumbents with uncertain (unstable) tenure having higher discount rates for rent seeking, while bribe givers are more willing to engage with stable incumbents. Our work focuses on political uncertainty primarily in the form of assassinations that is unforeseen by both bribe takers and bribe givers.

² The primary limitation in doing a pooled analysis is the limited time-series properties of Corruption (TI).

³ We also considered another dimension by examining only assassinations of heads of state. The overall pattern of findings was similar, although with obvious more limited variations within and across nations. Also see Section 3.2.3.

⁴ Goel and Ram (2013) have alternately used the means and SDs of inflation to capture economic uncertainty. See Dixit and Pindyck (1994) for a broader, authoritative study on uncertainty.

⁵ We extend the data on assassinations from Jones and Olken (2009) where they examine the effect of assassinations on institutions.

⁶ Further, there is the possibility that the nature of democracy might change following conflict in a nation (see Bang and Mitra (2016)).

⁷ While data for many variables in the analysis are available for additional years, we conduct a cross-sectional analysis for two primary reasons: (a) the assassinations variable is sporadic and lumpy with many nations having zero observations in additional years followed sometimes by a flurry of activity (thus, taking a multi-year average or variation seems more appropriate, as we have done) and (b) the corruption measures, especially Corruption (TI), have better cross-sectional comparability (see www.trasnapency.org).

⁸ The diagnostic tests signal heteroscedasticity in Table 3; however, the Huber–White sandwich estimator is used to calculate SEs robust to heteroscedasticity.