Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-06T06:48:15.915Z Has data issue: false hasContentIssue false

Can capitalism restrain public perceived corruption? Some evidence

Published online by Cambridge University Press:  30 April 2012

HUGO J. FARIA*
Affiliation:
Instituto de Estudios Superiores de Administración (IESA) Caracas, Venezuela
DANIEL R. MORALES*
Affiliation:
Barna Business School, Santo Domingo, Dominican Republic
NATASHA PINEDA*
Affiliation:
Instituto de Estudios Superiores de Administración (IESA) Caracas, Venezuela
HUGO M. MONTESINOS*
Affiliation:
Universidad Simón Bolívar (USB) and Instituto de Estudios Superiores de Administración (IESA) Caracas, Venezuela

Abstract:

A growing body of evidence documents a vast array of economic and social ill-effects of public perceived corruption. These findings and the scant evidence of recent success in the fight against corruption beg the question: how to abate it? We document the existence of a negative, statistically significant and quantitatively large impact of economic freedom (our proxy for institutions of capitalism, markets and competition) on public corruption. This negative response of corruption to economic freedom holds after allowing for non-linearities interacting economic freedom and political rights, endowments, legal families, ethnicity and for robust determinants of corruption uncovered by Daniel Treisman [‘What Have We Learned About the Causes of Corruption From Ten Years of Cross-National Empirical Research?’, Annual Review of Political Science, 10: 211–244], such as income, democracy, freedom of the press and fuel exports. Thus, this paper helps to explain why high-income prosperous countries exhibit low levels of public perceived corruption, and why honesty is a normal good.

Type
Research Article
Copyright
Copyright © Millennium Economics Ltd 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ades, A. and Di Tella, R. (1999), ‘Rents, Competition and Corruption’, American Economic Review, 89 (4): 982993.Google Scholar
Adsera, A., Boix, C., and Payne, M. (2003), ‘Are You Being Served? Political Accountability and the Quality of Government’, Journal of Law, Economics and Organization, 114 (4): 445490.CrossRefGoogle Scholar
Ahlin, C. and Pang, J. (2008), ‘Are Financial Development and Corruption Control Substitutes in Promoting Growth?’, Journal of Development Economics, 86 (2): 414433.Google Scholar
Aidt, T., Dutta, J., and Sena, V. (2008), ‘Governance Regimes, Corruption and Growth: Theory and Evidence’, Journal of Comparative Economics, 36 (2): 195220.CrossRefGoogle Scholar
Alesina, A. and Angeletos, G.-M. (2005), ‘Corruption, Inequality and Fairness’, Journal of Monetary Economics, 52: 12271244.CrossRefGoogle Scholar
Algan, Y. and Cahuc, P. (2009), ‘Civic Virtue and Labor Market Institutions’, American Economic Journal: Macroeconomics, 1 (1): 111145.Google Scholar
Aquinas, T. (1964), Summa Theologica, Edición Bilingüe, Madrid: Biblioteca de Autores Cristianos.Google Scholar
Azzimonti, M (2011), ‘Barriers to Investment in Polarized Societies’, American Economic Review, 101 (5): 21822204.Google Scholar
Barth, J., Lin, C., Lin, P., and Song, F. (2009), ‘Corruption in Bank Lending to Firms: Cross-Country Micro Evidence on the Beneficial Role of Competition and Information Sharing’, Journal of Financial Economics, 91: 361388.Google Scholar
Baumol, W. J. (1990), ‘Entrepreneurship: Productive, Unproductive and Destructive’, Journal of Political Economy, 98: 893921.Google Scholar
Beck, T. (2009), ‘The Econometric of Finance and Growth’, in Mills, T. and Patterson, K. (eds.), Palgrave Handbook of Econometrics, Vol. 2, Basingstoke: Palgrave Macmillan, pp. 11801212.Google Scholar
Beck, T., Demirguc-Kunt, A., and Levine, R. (2006), ‘Bank Supervision and Corruption in Lending’, Journal of Monetary Economics, 53: 21312163.Google Scholar
Beck, T., Demirguc-Kunt, A., and Maksimovic, V. (2005), ‘Financial and Legal Constraints to Firm Growth: Does Size Matter?’, Journal of Finance, 60: 137177.CrossRefGoogle Scholar
Becker, G. (1983), ‘A Theory of Competition among Pressure Groups for Political Influence’, Quarterly Journal of Economics, 98: 371400.CrossRefGoogle Scholar
Becker, G. (1985), ‘Public Policies, Pressure Groups and Deadweight Costs’, Journal of Public Economics, 28: 329347.Google Scholar
Beugelsdijk, S. (2006), ‘A Note on the Theory and Measurement of Trust in Explaining Differences in Economic Growth’, Cambridge Journal of Economics, 30: 371387.Google Scholar
Bliss, C. and Di Tella, R. (1997), ‘Does Competition Kill Corruption?’, Journal of Political Economy, 105 (5): 10011003.Google Scholar
Boix, C. and Stokes, S. (2003), ‘Endogenous Democratization’, World Politics, 55: 517549.CrossRefGoogle Scholar
Braun, M. and Di Tella, R. (2004), ‘Inflation, Inflation Variability and Corruption’, Economics and Politics, 16: 77100.Google Scholar
Brunetti, A. and Weder, B. (2003), ‘A Free Press is Bad News for Corruption’, Journal of Public Economics, 87: 18011824.Google Scholar
Buchanan, J. M. and Tullock, G. (1962), The Calculus of Consent, Ann Arbor: University of Michigan Press.Google Scholar
Carden, A. and Verdon, L. (2010), ‘When is Corruption a Substitute for Economic Freedom?’, The Law and Development Review, 3 (1): 4164.Google Scholar
Chafuen, A. (1991), Economía y ética. Raíces cristianas de la economía de libre mercado, Madrid: Editorial Rialp.Google Scholar
Coase, R. (1960), ‘The Problem of Social Cost’, Journal of Law and Economics, 3 (1): 144.Google Scholar
Cole, J. (2003), ‘The Contribution of Economic Freedom to World Economic Growth’, Cato Journal, 23: 189198.Google Scholar
Dawson, J. (1998), ‘Institutions, Investment and Growth: New Cross-Country and Panel Data Evidence’, Economic Inquiry, 36: 603619.Google Scholar
De Hann, J. and Sturm, J. (2006), ‘How to Handle Economic Freedom: Reply to Lawson’, Econ Journal Watch, 3 (3): 407411.Google Scholar
Deaton, A. and Heston, A. (2010), ‘Understanding PPPs and PPP-based National Accounts’, American Economic Journal: Macroeconomics, 2 (4): 135.Google Scholar
Di Tella, R. and Franceschelli, I. (2011), ‘Government Advertising and Media Coverage of Corruption Scandals’, American Economic Journal: Applied Economics, 3 (4): 119151.Google Scholar
Di Tella, R. and MacCulloch, R. (2009), ‘Why Doesn't Capitalism Flow to Poor Countries?’, Brookings Paper on Economic Activity, 2009 (Spring): 285321.Google Scholar
Di Tella, R. and Weinschelbaum, F. (2008), ‘Choosing Agents and Monitoring Consumption: A Note on Wealth as a Corruption-Controlling Device’, Economic Journal, 118: 15521571.Google Scholar
Diamond, J. (1997), Guns, Germs and Steel: The Fate of Human Societies, New York: Norton & Co.Google Scholar
Dincer, O. (2008), ‘Ethnic and Religious Diversity and Corruption’, Economic Letters, 99: 98102.Google Scholar
Djankov, S., La Porta, R., Lopez-de-Silanes, F., and Shleifer, A. (2002), ‘The Regulation of Entry’, Quarterly Journal of Economics, 117: 137.Google Scholar
Djankov, S., La Porta, R., Lopez-de-Silanes, F., and Shleifer, A. (2003), ‘Courts’, Quarterly Journal of Economics, 118: 453517.CrossRefGoogle Scholar
Djankov, S., La Porta, R., Lopez-de-Silanes, F., and Shleifer, A. (2010), ‘Disclosure by Politicians’, American Economic Journal: Applied Economics, 2 (2): 179209.Google Scholar
Dutt, P. and Traça, D. (2010), ‘Corruption and Bilateral Trade Flows: Extortion or Evasion?’, Review of Economics and Statistics, 92 (4): 843860.Google Scholar
Easterly, W. and Levine, R. (1997), ‘Africa's Growth Tragedy: Policies and Ethnic Divisions’, Quarterly Journal of Economics, 112: 12031250.Google Scholar
Easterly, W. and Levine, R. (2003), ‘Tropics, Germs, and Crops: How Endowments Influence Economic Development’, Journal of Monetary Economics, 50: 339.Google Scholar
Easterly, W. and Levine, R. (2009), The European Origins of Economic Development, Working Paper, http://williameasterly.files.wordpress.com/2010/08/5_easterly_levine_europeanoriginsofeconomicdevelopment_wp.pdf (accessed March 2012).Google Scholar
Engermann, S. and Sokoloff, K. (1997), ‘Factor Endowments, Institutions, and Differential Paths of Growth Among New World Economies: A View from Economic Historians of the United States’, in Harber, S. (ed.), How Latin America Fell Behind, Stanford: Stanford University Press, pp. 260304.Google Scholar
Escaleras, M., Lin, S., and Register, C. (2010), ‘Freedom of Information Acts and Public Sector Corruption’, Public Choice, 145: 435460.Google Scholar
Fan, S., Lin, C., and Treisman, D. (2008), ‘Political Decentralization and Corruption: Evidence From Around the World’, Journal of Public Economics, 91: 22612290.Google Scholar
Faria, H. and Montesinos, H. (2009), ‘Does Economic Freedom Cause Prosperity? An IV Approach’, Public Choice, 141 (1): 103127.Google Scholar
Faria, H., Montesinos, H., Morales, D., Aviles, C., and Brito, O. (2011), ‘Does Corruption Cause Encumbered Business Regulations? An IV Approach’, Applied Economics, 45 (1): 6583.Google Scholar
Faria, H. and Morales, D. (2012), ‘Colonizer Identity, Settlement Strategy, and Early Mercantilism: Do They Matter for Modern Development?’, Working Paper, Barna Business School and IESA.Google Scholar
Ferraz, C. and Finan, F. (2008), ‘Exposing Corrupt Politicians: The Effects of Brazil's Publicly Released Audits on Electoral Outcomes’, Quarterly Journal of Economics, 123 (2): 703746.Google Scholar
Friedman, M. (1962), Capitalism and Freedom, Chicago: University of Chicago Press.Google Scholar
Gallup, J., Mellinger, A., and Sachs, J. (1998), ‘Geography and Economic Development’, NBER Working Paper No. 6849, http://www.nber.org/papers/w6849.pdf (accessed March 2012)Google Scholar
Galor, O. (2010), ‘The 2008 Lawrence R. Klein Lecture–Comparative Economic Development: Insights from Unified Growth Theory’, International Economic Review, 51 (1): 144.Google Scholar
Galor, O., Moav, O., and Vollrath, D. (2009), ‘Inequality in Land Ownership, the Emergence of Human Capital Promoting Institutions, and the Great Divergence’, Review of Economic Studies, 76 (1): 143179.Google Scholar
Glaeser, E., La Porta, R., Lopez-de-Silanes, F., and Shleifer, A. (2004), ‘Do Institutions Cause Growth?’, Journal of Economic Growth, 9: 271303.Google Scholar
Goel, R. and Nelson, M. (2005), ‘Economic Freedom versus Political Freedom: Cross-Country Influences on Corruption’, Australian Economic Papers, 44 (2): 121133.Google Scholar
Grice-Hutchinson, M. (1952), The School of Salamanca. Readings in Spanish Monetary Theory 1544–1605, Oxford: Clarendon Press.Google Scholar
Gundlach, E. and Paldam, M. (2009), ‘The Transition of Corruption: From Poverty to Honesty’, Economic Letters, 103 (3): 146148.Google Scholar
Gwartney, J., Holcombe, R., and Lawson, R. (2004), ‘Economic Freedom, Institutional Quality, and Cross-Country Differences in Income and Growth’, Cato Journal, 24: 205233.Google Scholar
Gwartney, J., Holcombe, R., and Lawson, R. (2006), ‘Institutions and the Impact of Investment on Growth’, Kyklos, 59: 255273.Google Scholar
Gwartney, J., Lawson, R., and Norton, S. (2008), Economic Freedom of the World Annual Report, Vancouver: Fraser Institute.Google Scholar
Hall, R. and Jones, C. (1999), ‘Why Do Some Countries Produce so Much More Output per Worker than Others?’, Quarterly Journal of Economics, 114: 83116.Google Scholar
Hayek, F. (1944), The Road to Serfdom, Chicago: University of Chicago Press.Google Scholar
Hayek, F. (1960), The Constitution of Liberty, Chicago: University Chicago Press.Google Scholar
Hayek, F. (1988), The Fatal Conceit, Chicago: University of Chicago Press.Google Scholar
Hellman, J., Jones, G., and Kaufmann, D. (2003), ‘Seize the State, Seize the Day: State Capture and Influence in Transition Economies’, Journal of Comparative Economics, 31: 751773.CrossRefGoogle Scholar
Hodgson, G. M. and Jiang, S. (2007), ‘The Economics of Corruption and the Corruption of Economics: An Institutionalist Perspective’, Journal of Economic Issues, XLI: 10431061.Google Scholar
Hoebel, E. A. (1958), Man in the Primitive World, 2nd edn, New York: McGraw-Hill.Google Scholar
Huntington, S. (1968), Political Order in Changing Societies, New Haven: Yale University Press.Google Scholar
Klerman, D., Mahoney, P., Spamann, H., and Weinstein, M. (2011), ‘Legal Origin or Colonial History?’, Journal of Legal Analysis, 3 (2): 379409.Google Scholar
Koyuncu, C., Ozturkler, H., and Yilmaz, R. (2010), ‘Privatization and Corruption in Transition Economies: A Panel Study’, Journal of Economic Policy Reform, 13 (3): 277284.Google Scholar
La Porta, R., Lopez-de-Silanes, F. and Shleifer, A. (2008), ‘The Economic Consequences of Legal Origin’,Journal of Economic Literature, 88: 430465.Google Scholar
La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R. (1997), ‘Trust in Large Organizations’, American Economic Review, 87 (2): 333338.Google Scholar
La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R. (1998), ‘Law and Finance’, Journal of Political Economy, 106 (6): 11131155.Google Scholar
La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R. (1999), ‘The Quality of Government’, Journal of Law, Economics and Organization, 15: 222279.Google Scholar
Landes, D. (1998), The Wealth and Poverty of Nations, New York: W. W. Norton.Google Scholar
Lawson, R. (2006), ‘On Testing the Connection between Economic Freedom and Growth’, Econ Journal Watch, 3 (3): 398406.Google Scholar
Machiavelli, N. (1987 [1519]), Discourses on Livy, New York: Oxford University Press.Google Scholar
Mauro, P. (1995), ‘Corruption and Growth’, Quarterly Journal of Economics, 110 (3): 681712.Google Scholar
McMillan, J. and Zoido, P. (2004), ‘How to Subvert Democracy: Montesinos in Peru’, Journal of Economic Perspectives, 18 (4): 6992.Google Scholar
Méon, P. and Weill, L. (2009), ‘Is Corruption an Efficient Grease?’, World Development, 37: 16371650.Google Scholar
Mo, P. (2001), ‘Corruption and Economic Growth’, Journal of Comparative Economics, 29: 6679.Google Scholar
Murphy, K., Shleifer, A., and Vishny, R. (1993), ‘Why is Rent-Seeking so Costly to Growth?’, American Economic Review Papers and Proceedings, 83 (2): 409414.Google Scholar
North, D., Wallis, J., and Weingast, B. (2009), Violence and Social Orders: A Conceptual Framework for Understanding Recorded Human History, Cambridge: Cambridge University Press.Google Scholar
Olken, B. (2007), ‘Monitoring Corruption: Evidence from a Field Experiment in Indonesia’, Journal of Political Economy, 115 (2): 6992.Google Scholar
Olson, M. (1965), The Logic of Collective Action, Cambridge, MA: Harvard University Press.Google Scholar
Pistor, K. (2006), ‘Legal Ground Rules in Coordinated and Liberal Market Economies’, in Hopt, K. J., Wymeersch, E., Kanda, H. and Baum, H. (eds.), Corporate Governance in Context: Corporations, States, and Markets in Europe, Japan and the US, Oxford and New York: Oxford University Press, pp. 249280.Google Scholar
Rodrik, D., Subramanian, A., and Trebbi, F. (2004), ‘Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development’, Journal of Economic Growth, 9: 131165.Google Scholar
Rose-Ackerman, S. (1978), Corruption: A Study in Political Economy, New York: Academic Press.Google Scholar
Sachs, J. (2001), ‘Tropical Underdevelopment’, NBER Working Paper no. 8119, http://www.nber.org/papers/w8119 (accessed March 2012).Google Scholar
Shleifer, A. (2004), ‘Does Competition Destroy Ethical Behavior?’, American Economic Review, 94: 414418.Google Scholar
Shleifer, A. and Vishny, R. (1993), ‘Corruption’, Quarterly Journal of Economics, 108: 599617.Google Scholar
Stiglitz, J. (2002), ‘Employment, Social Justice and Societal Well-Being’, International Labor Review, 141 (1–2): 929.Google Scholar
Svensson, J. (2005), ‘Eight Questions about Corruption’, Journal of Economic Perspectives, 19 (3): 1942.Google Scholar
Swaleheen, M. (2011), ‘Economic Growth with Endogenous Corruption: An Empirical Study’, Public Choice, 146: 2341.Google Scholar
Treisman, D. (2000), ‘The Causes of Corruption: A Cross-National Study’, Journal of Public Economics, 76 (3): 399457.Google Scholar
Treisman, D. (2007), ‘What Have We Learned about the Causes of Corruption from Ten Years of Cross-National Empirical Research?’, Annual Review of Political Science, 10: 211244.Google Scholar
Tullock, G. (1967), ‘The Welfare Cost of Tariffs, Monopolies and Theft’, Western Economic Journal, 5: 224232.Google Scholar