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ABSTRACT
While democracy is commonly believed to reduce corruption, there are obvious endogeneity problems in measuring the impact of democracy on corruption. This article attempts to address the endogeneity of democracy by exploiting the thesis 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 1946–2008, 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 may hence be more important in combating corruption than previous studies would suggest.
Acknowledgements
The authors thank Bertil Tungodden, Magnus Hatlebakk, Debapriya Bhattacharya, Erik Ø. Sørensen and four anonymous reviewers for valuable comments.
Disclosure statement
No potential conflict of interest was reported by the authors.
Funding
Norwegian Ministry of Foreign Affairs.
Notes on contributors
Ivar Kolstad is Senior Researcher at the Chr. Michelsen Institute and Associate Professor at the Department of Economics, Norwegian School of Economics, Bergen, Norway. His research focuses on the political economy of natural resources and development, poverty dynamics, and corporate social responsibility.
Arne Wiig is Research Director at the Chr. Michelsen Institute, Bergen, Norway. His research interests include natural resources and development, poverty analysis, foreign direct investment, international trade, and corporate social responsibility.
Notes
1. For reviews of earlier studies see Pellegata, “Constraining Political Corruption”; Rock, “Corruption and Democracy”; and Lambsdorff, “Consequences and Causes of Corruption.”
2. Pellegata, “Constraining Political Corruption,” 1211.
3. Treisman, “What Have We Learned,” 236.
4. The former definition is advanced by the World Bank, the latter by Transparency International, see for example Shaxson, “Oil, Corruption and the Resource Curse.”
5. Svensson, “Eight Questions About Corruption”; Treisman, “What Have We Learned.”
6. Schumpeter, Capitalism, Socialism, and Democracy.
7. Dahl, Polyarchy.
8. Myerson, “Effectiveness of Electoral Systems”; Ades and Tella, “Rents, Competition and Corruption.”
9. Hollyer, Rosendorff, and Vreeland, “Democracy and Transparency.”
10. Rose-Ackerman, Corruption and Government.
11. Pani, “Hold Your Nose and Vote.”
12. Bac, “Corruption, Connections and Transparency.”
13. Andvig and Moene, “How Corruption May Corrupt.”
14. Treisman, “What Have We Learned.”
15. Treisman, “The Causes of Corruption.”
16. Rock, “Corruption and Democracy.”
17. Brown, Touchton, and Whitford, “Political Polarization as a Constraint.”
18. Paldam, “The Cross-country Pattern of Corruption”; Uslaner, Corruption, Inequality, and the Rule of Law.
19. Seligson, “The Measurement and Impact”; Tucker, “Enough!”; Kostadinova, “Abstain or Rebel”; Stockemer, LaMontagne, and Scruggs, “Bribes and Ballots.”
20. Brunetti and Weder, “A Free Press”; Persson and Tabellini, “Economic Effects of Constitutions”; Persson, Tabellini, and Trebbi, “Electoral Rules and Corruption”; Kunicova, “Democratic Institutions and Corruption”; Treisman, “What Have We Learned”; Lessmann and Markwardt, “One Size Fits All?”; Kolstad and Wiig, “Is Transparency the Key”; Saha, Gounder, and Campbell, “Democracy and Corruption.”
21. Dong and Torgle, Democracy, Property Rights; Saha, Gounder, and Su, “The Interaction Effect”; Stockemer, “Does Democracy Lead to Good Governance?”; Stockemer, “Regime Type and Good Governance.”
22. Pellegata, “Constraining Political Corruption”; Mohtadi and Roe, “Democracy, Rent Seeking.”
23. Kant, Perpetual Peace.
24. Doyle, “Kant, Liberal Legacies”; Russett, Grasping the Democratic Peace; Russett and Antholis, “Do Democracies Fight Each Other?”
25. Tomz and Weeks, “Public Opinion.”
26. Raknerud and Hegre, “The Hazard of War.”
27. Henderson, “Disturbing the Peace.”
28. Mansfield and Snyder, Why Emerging Democracies Go to War.
29. Marshall and Cole, Global Report 2009.
30. Svensson, “Eight Questions About Corruption”; Treisman, “What Have We Learned.”
31. Rock, “Corruption and Democracy.”
32. La Porta et al., “The Quality of Government.”
33. Teorell and Hadenius, Determinants of Democratization.
34. The sample is cut to 150 observations if we instead use the Transparency International corruption perceptions index as the dependent variable. If we use the Freedom House political rights index as the main explanatory variable, samples increase to 174 observations (with the World Bank corruption index as dependent variable) and 169 observations (with the TI corruption index as dependent variable). Adding labour participation rates and proportion of Catholics in the population reduces the main sample from 151 to 148 countries.
35. Stock, Wright, and Yogo, “A Survey of Weak Instruments.”
36. In further estimations, we used the approach of Lewbel, “Using Heteroscedasticity to Identify,” to generate further internal instruments, and the exogeneity of our instrument was not rejected through a Sargan overidentification test (p > 0.838).
37. Mansfield and Snyder, Why Emerging Democracies Go to War.
38. Henderson, “Disturbing the Peace.”
39. Mansfield and Snyder, Why Emerging Democracies Go to War.
40. Mohtadi and Roe, “Democracy, Rent Seeking.”
41. Mansfield and Snyder, Why Emerging Democracies Go to War.
42. Acemoglu and Angrist, “How Large Are the Social Returns to Education?”