Corruption, growth and ethnic fractionalization: a theoretical model

Abstract

This paper analyzes the existing relationship between ethnic fractionalization, corruption and the growth rate of a country. We provide a simple theoretical model. We show that a nonlinear relationship between fractionalization and corruption exists: corruption is high in homogeneous or very fragmented countries, but low where fractionalization is intermediate. In fact, when ethnic diversity is intermediate, constituencies act as a check and balance device to limit ethnically-based corruption. Consequently, the relationship between fractionalization and growth rate is also non-linear: growth is high in the middle range of ethnic diversity, low in homogeneous or very fragmented countries

How Do Groups Stabilize Corruption?

“…This result contradicts that of Cerqueti et al . (), who found that corruption levels, defined as the proportion of successful corrupt interactions in a case of a concession given for a new technology, are high in very fractionalized as well as in homogeneous but low in moderately fractionalized societies. Their results are guided by the assumption of two countervailing effects.…”

“…In a theoretical model, Cerqueti et al . () investigated the relationship between social fractionalization, corruption and growth. They find that corruption levels should be high in very fractionalized as well as in very homogeneous, but low in intermediately fractionalized societies (the opposite of Dincer's findings).…”

“…In this respect, our approach in this paper differs substantially from the approach chosen by Cerqueti et al . (), which sets aside the commitment problem of briber and bribee. Within the New Institutional Economics of Corruption (Lambsdorff, ), the stability of a corrupt transaction through repeated interaction determines its level, as only a minority of corrupt deals are finalized in an immediate exchange of money and services (as implicitly assumed by Cerqueti et al ., ).…”

“…(), which sets aside the commitment problem of briber and bribee. Within the New Institutional Economics of Corruption (Lambsdorff, ), the stability of a corrupt transaction through repeated interaction determines its level, as only a minority of corrupt deals are finalized in an immediate exchange of money and services (as implicitly assumed by Cerqueti et al ., ). Therefore, the focus of our model is on the interaction between the effects due to the existence and shape of sub‐networks on the internalization of the negative external effect and the stabilization of illegal corrupt transactions.…”

Transparency to curb corruption? Concepts, measures and empirical merit

“…The high correlation between government quality and economic development is, according to Treisman [42] Bby far the strongest and most consistent finding^in empirical work (see also [42,57,58]). We also control for ethnic fractionalization using the measure developed by Alesina et al [59], since more polarized societies are more prone to competitive rent seeking ( [60][61][62]: [63]) which may affect the quality of government institutions. Finally, the number of women in government may tap into both concepts since it may indicate a general inclusiveness of the political system [64][65][66].…”