Corruption and Growth: Long-run Historical Evidence (1790-2010)

Luca Jacopo Uberti (University of Luxembourg)

Abstract

We employ a newly assembled indicator of corruption from Varieties of Democracy (V-Dem) to examine the effects of corruption on economic growth. The V-Dem indicator is coded for almost all contemporary and historical polities since the year 1900 and, for some countries, since the French Revolution. This global dataset allows us to exploit long-run, slow-moving variation within countries for identification, circumventing many of the difficulties faced by previous studies based on cross-section data or short panels. We present robust evidence of a negative effect of corruption on economic growth. Yet, we find that corruption interacts with political regime type, giving rise to heterogeneous effects. In particular, corruption is found to be significantly more deleterious for growth in democracies than in autocracies. Since corruption tends to be decentralised in democracies and centralised in autocracies, these findings are in line with theories of the industrial organisation of corruption. We find little to no evidence that other features of the institutional environment (state capacity, regulatory quality, property rights protection) exert a moderating influence on the magnitude of the corruption effect, casting doubt on the ‘grease the wheels’ hypothesis. Our findings provide a rational to target anti-corruption efforts and resources to young democracies.

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