What Determines Corruption? International Evidence from Micro Data

Abstract

This paper utilizes a micro-level data set from 49 countries to address three issues: What determines corruption at the individual level? What determines the perception of the extent of corruption in the country? Does corruption have a direct impact on growth when the quality of the institutions are controlled for? In addition, the paper creates a direct measure of corruption which portrays the extent of corruption as revealed byindividuals who live in those countries. The results show that both personal and country characteristics determine the risk of exposure to bribery. Examples are gender, wealth, education, marital status, the city size, the legal origin of the country, the existence of uninterrupted democracy, a war between 1960s and 1980s, and the strength of the institutions in the country (measured by the risk of expropriation). The second part of the paper shows that controlling for endogeneity of corruption and institutional quality, actual corruption in the country and the proportion of the bribes asked by various government agencies have no direct impact on corruption perception. On the other hand, an improvement in the quality of institutions lowers the perception of corruption. The final section of the paper shows that controlling for the quality of the institutions, corruption does not have a direct impact on growth. Keeping constant the geographical location of the country, the legal origin, religious composition, the presence of a war, the federal status, initial education and income as well as the extent of corruption in the country, a one-half standard deviation increase in the quality of institutions (e.g. from the level of Indonesia to the level of India), generates an additional 0.7 percentage point increase in the average annual per capita GDP growth.

Corruption and the effects of economic freedom

“…This mechanism received support from conventional estimates of the aggregate economic freedom indicators though the work of Graeff and Mehlkop (2003) documenting that the response of corruption to the components of economic freedom appears to be contradictory. Furthermore, the corruption literature has emphasized the importance of microfounding relationships as an explanation for its determinants (Mocan, 2008).…”

“…We assume that a latent continuous 3 A criticism to model the quality of institutions on corruption at the micro-level might be based on the low variability of preferences and expectations in face to firms. Mocan (2008) yields a model in which it is assumed that an increase in the quality of the institutions in a country, which would increase the probability of apprehension, would in turn reduce the propensity to ask for a bribe. variable y ij * exists underlying y ij .…”

“…Classical references include Shleifer and Vishny (1993), Mauro (1995), Bardhan (1997) and Meon and Sekkat (2005). Our work is also related to the empirical analyses that use microdata to investigate the determinants of corruption (Swamy et al, 2001;Svensson, 2003;Mocan, 2008). Finally, we refer to the works of Hodgson (2006) and Hodgson and Jiang (2007) that extend the role of corruption to the private sector and justify the extensive unsuccessful privatization and the market competition in affecting corruption.…”

Why farm households have differences in corruption experiences? Evidences from Bangladesh

“…Due to the secretive nature of corruption, it is difficult to find direct witnesses of it, especially when there is a win-win situation (Johnston 2000). Furthermore, the unavailability of micro-data regarding corruption versus the relatively easy availability of the aggregate-level data is perhaps another limiting factor (Mocan 2008).…”

Public and private sector jobs, unreported income and consumption gap in India: Evidence from micro-data

“…However, the data set for measuring corruption in India has many limitations compared to other country studies (viz. Dreher, et al 2007;Johnson et al, 2000;Mocan, 2004;van Rijckeghem and Weder, 2001, etc).…”