You are on page 1of 33

Comparative Political Studies http://cps.sagepub.

com/

Legislative Institutions and Corruption in Developing Country Democracies


Vineeta Yadav Comparative Political Studies 2012 45: 1027 originally published online 8 December 2011 DOI: 10.1177/0010414011428596 The online version of this article can be found at: http://cps.sagepub.com/content/45/8/1027

Published by:
http://www.sagepublications.com

Additional services and information for Comparative Political Studies can be found at: Email Alerts: http://cps.sagepub.com/cgi/alerts Subscriptions: http://cps.sagepub.com/subscriptions Reprints: http://www.sagepub.com/journalsReprints.nav Permissions: http://www.sagepub.com/journalsPermissions.nav

>> Version of Record - Aug 6, 2012 OnlineFirst Version of Record - Dec 8, 2011 What is This?

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

428596
8596YadavComparative Political Studies The Author(s) 2012 Reprints and permission: sagepub.com/journalsPermissions.nav

CPS45810.1177/001041401142

Legislative Institutions and Corruption in Developing Country Democracies


Vineeta Yadav1

Comparative Political Studies 45(8) 10271058 The Author(s) 2012 Reprints and permission: sagepub.com/journalsPermissions.nav DOI: 10.1177/0010414011428596 http://cps.sagepub.com

Abstract This article extends the research on institutional sources of corruption by investigating whether legislative institutions play a significant role in driving corruption in developing country democracies. The author argues that when legislative rules (a) give parties control over agenda setting and (b) allow parties to strip legislators who vote against the party line of their legislative mandates, parties can exercise valuable influence over the legislative policy process, which allows them to engage in practices leading to higher corruption. The author derives two testable hypotheses linking higher party influence over agenda setting and voting in the legislature to higher corruption and test them by using a new data set on legislative rules for 64 developing country democracies from 1984 to 2004. The empirical results corroborate the hypotheses and remain robust when controlling for alternative explanations, employing different estimation techniques, and using different measures of corruption. Keywords corruption, lobbying, interest groups, legislative institutions, agenda setting, party discipline, voting

Penn State University, University Park, PA, USA

Corresponding Author: Vineeta Yadav, Department of Political Science, Penn State University, 331 Pond Lab, University Park, PA 16802 Email: vyadav@psu.edu

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

1028

Comparative Political Studies 45(8)

Why do some developing country democracies experience more corruption than others? Scholars have tackled this question by studying how various social and cultural factors, economic policies, institutions, and the rule of law are related to corruption.1 They generally agree that, of these factors, high income and robust rule of law reduce corruption. The study of political institutions has, however, led to a vigorous debate about the precise mechanisms that link institutions to corruption and the nature of their impact. Scholars have drawn on the insights of institutional theory to theorize that electoral rules, executive regime choice, federalism, and district magnitude contribute to corruption by influencing party strength, by establishing lines of accountability, and by creating different levels of political competition. This body of work has yielded rich insights into the links between institutional incentives and corruption. Yet it is surprising that the incentives created by legislative rules have received little attention in this debate. This is a potentially important omission because legislative rules influence who commands one of the most lucrative political assets parties and politicians can have in officeinfluence over the legislative policy process. This raises the possibility that legislative rules governing the policy process may promote or restrain corruption through the rules of engagement they provide to political and business actors. Multiple studies do in fact show that business interests value influence over the legislative policy process, lobby for it, and are willing to pay handsomely to access the policy process to influence policy outcomes.2 Given the potential links between legislative rules and lobbying and between business lobbying and corruption, this raises an important question: To what extent can we explain the observed variation in corruption across developing country democracies by analyzing the variation in the institutional structure of legislative policy making? In this article, I present a theoretical framework that argues that countries with legislative rules that create party-focused lobbying will experience higher corruption. Specifically, I argue that when agenda-setting rules favor parties and voting rules allow party leaders to strip antiwhip voters of their legislative mandate, ceteris paribus, legislative party discipline will be high and parties will attract business funds. Otherwise, business interests will lobby legislators. Party-focused lobbying results in higher and more pervasive corruption. Two demand-side mechanismsparties need to raise more funds and prefer money over other political resourcesraise the demand for corrupt money. Two supply-side dynamicsparty legislative ability to capture state institutions such as the bureaucracy and the judiciary and to protect corrupt financing practicesincrease their ability to supply their demands. As a result, I hypothesize that legislative rules that allow for party control of agenda

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

Yadav

1029

setting and provide parties with the ability to expel dissidents engender more corrupt practices in the political and administrative spheres, which, in turn, lead to higher corruption. To test the two hypotheses, that party control of agenda setting and party ability to expel legislative dissenters from office each lead to higher corruption levels in developing democracies, I use a new data set on legislative rules for 64 developing country democracies from 1984 to 2004. For reasons discussed in the article, I restrict my analysis here to developing country democracies only. Using two widely used measures of corruption, I find strong support for both hypotheses that remains robust when I control for alternative explanations and employ different estimation techniques. As detailed in the conclusion, these empirical findings have several implications for the study of corruption, institutions, and lobbying in developing countries. The results also speak to the debate on the role parties play in influencing corruption by showing that stronger legislative parties can in fact be associated with higher corruption levels in these countries. The new data set presented here also provides a new resource for exploring legislative politics in developing democracies further. In the rest of the article, I first present the theoretical framework linking legislative institutions to lobbying behavior and then consequently to corruption levels through four distinct mechanisms. I then present the two hypotheses to be tested, discuss the data, and present the statistical results. I conclude by discussing the implications of these results.

Theoretical Framework
Business interest groups engage in lobbying and make political donations primarily to gain favorable policy outcomes from political principals (Hellman & Kaufmann, 2000; Johnston, 2005). Legislative statutes define policies in most countries (Huber & Shipan, 2002, p. 1). This suggests that to understand the roots of corruption stemming from sale of legislative policies, we should analyze the institutions that structure legislative policy influence. Although earlier work sourced legislative influence largely in either electoral rules (Cain, Ferejohn, & Fiorina, 1987, pp. 224-228; Carey & Shugart, 1997) or executive regime types (Deiermeir & Feddersen, 2002; Huber, 1996), recent work has increasingly emphasized that this distinction between macro institutions is inadequate; explaining political outcomes often required greater focus on the details of institutions structure (Haggard & McCubbins, 2001, p. 4). The prevalence of coalitions across executive regimes underscores this need (Carey & Shugart, 1997; Cheibub, 2007).

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

1030

Comparative Political Studies 45(8)

Legislative rules directly affect policy by influencing which policies are implemented (Cox & McCubbins, 2007; Dring, 1995), who benefits from them (Cox, 2000; Milner, 1997), whether and how coalition bargains are enforced (Martin & Vanberg, 2004), and who gets political credit for the successes and blamed for the failures (Cox, 2000; Rasch, 1995). These findings combined suggest that legislative rules are potentially among these important missing institutions whose effects should be accounted for. In this section, I focus specifically on how rules over agenda setting and voting influence political control over policy because these stages are crucial in policy making. Agenda control. Political actors with agenda-setting powers decide which bills make it to chamber agendas and which are blocked, the procedures bills must follow, and their timing (Dring, 1995; Tsebelis & Aleman, 2005). Furthermore, agenda setters may choose from alternative drafts of a bill, which allows them to influence the substantive and ideological terms of the policy debate (Tsebelis & Aleman, 2005). The cumulative impact of these advantages, as Cox (2000, p. 184) states, is that [t]he power to decide which bills make it to the floor is arguably the least appreciated but most fundamental power in terms of influencing final [policy] outcomes. Empirical evidence across political systems confirms that agenda setters do enjoy an edge in determining the composition of floor business and rarely get rolled on agenda setting votes.3 Agenda-setting influence should therefore be valued highly by business donors and should be a key determinant of their lobbying decisions. For example, the gambling industry in Brazil and the media industry in Czech Republic contributed money to legislators, whereas Indian industrial groups contributed to parties so that they would place industry-favored bills on the floor agenda (LatinNews.com, 2007; Open Society Institute [OSI], 2002, p. 7; Yadav, 2010). These examples illustrate that business interests value agenda setting influence highly and, to obtain it, fund the political playersparties or individual legislatorswho control agenda setting in their country. Countries have adopted a wide variety of institutional rules to structure political control over agenda setting powers. Typically assemblies distribute agenda setting powers in different ways over four potential political centers the executive, the president or leaders of chamber, a committee composed of some subset of institutional leaders (e.g., elected chamber officials, committee chairs, and party leaders), and finally the entire assembly itself. Multiple, mandatory, independent agenda setters undermine party influence over agenda setting by allowing disgruntled members denied agenda access through their own party leaders to approach alternative agenda setters. The higher the

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

Yadav

1031

number of independent centers holding agenda powers (i.e., fragmentation) and the higher the role of the entire floor in approving agenda-setter position nominations and appointments (the degree of independence), the lower the influence of party leaders in agenda setting should be. In countries such as Brazil and Poland agenda powers are fragmented among independent actors, individual legislators should therefore be empowered as agenda setters, and interest groups should fund individuals, whereas in countries such as South Africa and Mexico agenda-setting powers are concentrated in the hands of party appointed leaders. Hence, interest groups should finance parties to access the agenda. Voting dissidence. Irrespective of their level of influence at earlier stages, when a bill comes up for the vote to make it law at the final stage, business groups must muster enough votes to support their position whether its for or against the bills passage. Therefore, business interests should actively seek to influence the final votes of lawmakers in their favor. Various studies confirm that they do. Studies have found for example that 46% of 185 firms in Albania and 37% of 314 in Armenia (World Bank and European Bank for Reconstruction and Development, 2002), 32% of 158 Brazilian business groups, and 59% of 178 Indian business groups (Yadav, 2010) report being affected by the sale of parliamentary votes to private interests. Given the high value of such votes and the active market for them, the ability to control and deliver them should be very valuable for politicians and parties in developing democracies. Parties, however, will be able to attract business money for votes only if they can credibly commit ex ante to delivery of their legislative delegations votes to business groups. Parties ability to do so will depend on their capacity to impose sufficient costs on dissenters. Parties have many potential tools at their disposal to induce voting discipline, for example, the denial of staff support or desirable committee seats, but as Laver (2002) points out, If a partys decision-making regime can credibly threaten to withdraw the party label from legislators who fail to abide by party decisions about legislative behavior, then this makes such decisions easier to enforce (p. 132). Typically scholars have looked at party denial of nominations to party tickets in subsequent elections or threats of holding votes of confidence as mechanisms for withdrawing party affiliation. Although these tools are actively used by party leaders, many legislatures provide parties with a potentially more effective toolthe ability to strip members of their legislative mandate immediately if they vote against party wishes. I call this nuclear option voting dissidence or mandate control. Several factors make this threat especially effective. Parties can use it to credibly

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

1032

Comparative Political Studies 45(8)

threaten the only term legislators are guaranteed to havetheir current one and deprive them immediately of all benefits from office, and they can be surgical and expel only the offending members from the legislature. This discourages the emergence of antiparty voting coalitions. Importantly, it allows parties to impose the maximum cost on dissenters while minimizing the cost to the party itself. Since a ruling partys tenure in government will not necessarily be threatened by such expulsions, expulsions can be used more credibly as a modus operandi for producing voting discipline than the nuclear vote of confidence. Thus, even though it is not the only tool in the partys arsenal, the existence of this ultimate threat to expel dissidents provides party leaders with a credible ultimatum with respect to their delegation members and enables parties to credibly commit ex ante to delivering the desirable policy votes to businesses, thus attracting their donations. In countries such as India and Sierra Leone where parties have such power, we expect parties to attract business funds at this stage. In countries such as Poland and Chile, where parties are not given this legislative privilege, individual legislators are free to vote their own preferences and should attract business funds. Given their impact on structuring political control over legislative policy outcomes, these two legislative rules should strongly influence whether or not parties are in a position to extract corruption rents from business donors in exchange for exerting this control over the legislative policy process in their favor. I now discuss the four mechanisms that cause such party control over legislative policy influence to generate higher corruption in developing countries.

Party Policy Influence and Corruption: Four Mechanisms


As discussed above, legislative policy influence is a lucrative asset for both parties and politicians. However, as I discuss below in detail, when legislative institutions in a country make parties the dominant purveyors of such policy influence, it leads to higher and more pervasive levels of corruption as the result of four distinct dynamics.

Demand-Side Mechanisms
Political elites face chronic problems in raising sufficient money to finance their political expenses in most developing democracies. However, parties serve additional roles in society as organizers and financiers of party and candidate election campaigns, as managers of party organizations, and in

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

Yadav

1033

maintaining office functions and seat strength for the partys legislative delegation. These additional roles are not required of individual legislators. Hence, their financial needs are considerably higher. Low incomes and low political participation in most developing democracies prevent parties from raising adequate funds legally.4 In addition, parties in developing countries typically finance many illegal political tactics to stay competitive and prosper in politics. Illegal electoral tactics can include vote buying, hiring goons to intimidate opponents, stuffing ballot boxes, and bribing campaign officials.5 For example, in Bangladesh and Kenya parties spent more than half their campaign funds on vote buying (Bryan & Baer, 2005, pp. 33, 76). Although politicians engage in some of the same tactics, parties must do so on a much larger scale. Hence, the scale of illegal money parties require for elections is much higher. While in office, parties must amass a war chest of untraceable funds to purchase legislative votes for enacting policies, influencing votes of confidence, and approving appointments. For example, party leaders paid MPs between $20,000 and $50,000 for their votes in Ukraine (Walecki, 2003, p. 81) and paid opposition MPs to switch parties in Zambia (Bryan & Baer, 2005, p. 18). These are not expenses individual legislators must finance. The nature of these tactics privileges money that is fungible and can be used as necessary across jurisdictions and across legal and illegal tactics over other resources such as information and volunteers that cannot be used for these diverse strategic objectives. The frequency and nature of these illegal tactics thus require parties to raise more untraceable funds and create a strong preference among parties for receiving money over other resources from lobbies. When parties control the legislative process, these financial imperative spur them to use their legislative influence to deliver policy quid pro quos to business groups in exchange for illegal party financing to meet these demands.6

Supply-Side Mechanisms
Two supply-side mechanismsparty ability to capture state institutions via legislation and to protect corrupt financing practicesincrease the capacity of parties to raise illegal funds to meet their higher funding needs. The procedures and criteria for appointments and dismissals for senior bureaucratic, regulatory, and judicial positions, their operating budgets, their jurisdictions, and their powers are established via legislative statutes.7 Individual legislators do not command the legislative influence necessary to pass legislation that would enable systemic capture of these institutions and influence their ongo-

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

1034

Comparative Political Studies 45(8)

ing behavior, but strong legislative parties do. Partisan capture of bureaucratic, regulatory, and judicial institutions via the legislative process allows parties to integrate these institutions into their influence-peddling and rent-generating networks. Since influence over policy implementation, oversight, regulation, and adjudication can deliver valuable business benefits, it is highly prized by business interests. Furthermore, captured bureaucrats and judges can be coerced or co-opted into participating in ambitious, inventive party schemes to generate new rents by stealing from public coffers or extracting bribes from citizens in exchange for various services.8 By enabling state capture by parties, legislative rules therefore intimately link political, administrative, and judicial corruption and raise the aggregate level of corruption in a country.9 In Romania, for example, faced with poor voters and members, party leaders went through the accounts of public banks, identified businesses that had borrowed from them, and then extracted donations from them for passing legislative bills rescheduling their debt (OSI, 2002, p. 501). In Argentina and Bangladesh, parties manipulated legislation to appoint pliable judges willing to oblige parties and fire or transfer uncooperative judges (Transparency International [TI], 2009, p. 212). Observed administrative and judicial corruption levels were indeed high in these countries, but, as these examples show, they were rooted in and integrated into the corrupt practices of parties made feasible by their legislative powers. These examples illustrate how higher demand for operating funds can motivate party leaders to proactively meet those demands by exploiting their legislative powers at the cost of higher corruption levels when they control the legislative process. Since legislators simply do not have the capacity to assemble the legislative coalitions necessary to pull off financing schemes on this scale, these examples also show why individual legislators cannot use their legislative powers to similar effect in individual-focused countries despite attracting lobby funds. The fourth mechanism that causes party control over legislation to translate into higher corruption is higher party ability to conduct financing fraud. Parties enjoy two advantages over legislators when it comes to conducting financial fraud. Since party accounts consolidate revenues and expenses across multiple geographic levels for a much broader range of functions and sources, they are always more complex and require higher technical accounting skills (U.S. Agency for International Development [USAID], 2003). Second, strong legislative parties can determine the nature of political financing regulations and the personnel, budgets, and jurisdictions of the agencies implementing these regulations via legislation. Thus, strong parties can use

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

Yadav

1035

legislation to increase illegal financing practices by lowering the costs of illegal behaviors for themselves and their donors. For example, party-controlled congressional committees nipped repeated efforts to regulate lobbying and legislate disclosure requirements for lobbyists by arguing that it was unnecessary since there was no lobbying in Argentina (Johnson, 2008, p. 90), whereas parties in India legislated legal protections against the prosecution of bureaucrats (Yadav, 2010). In such countries, the line between legal and illegal political finance can be blurred, and legal business donations can represent a fraction of total political donations. Although legislators in a weak party system may enjoy a smaller probability of being audited, their chances of escaping prosecution if they are caught are very low and their capacity to protect their donors is also low. Hence, corruption through such practices should be lower in these countries. Studies of political finance show that parties and donors are aware of the strategic advantages such asymmetric auditing and information skills provide, and they take full advantage of them in party-focused developing democracies.10 Illegal business donations not only dominate political finance but also are frequently key to obtaining a legislative bang for even legal donations made earlier (Kaufmann & Vicente, 2008). Appropriate regulations are rarely adopted and, if so, rarely implemented because budgetary support and institutional authority required to perform their tasks are effectively denied to the oversight agencies (Djankov, Porta, Lopez-de-Silanes, & Shleifer, 2010; USAID, 2003). Party strength in legislation therefore also translates to higher corruption because it gives parties the ability to successfully protect fraudulent fund-raising practices. Collectively, these four dynamics therefore provide us with two testable hypotheses: Hypothesis 1: When agenda setting rules endow political parties with agenda control, ceteris paribus, corruption will be higher. Hypothesis 2: When voting rules endow political parties with control over voting expulsions, ceteris paribus, corruption will be higher.

Sample, Dependent Variable, and Statistical Method


Testing these two hypotheses requires a sample of developing countries that have democratic systems. To define the sample of democracies for this analysis, I use two measures of democracy that are commonly employed by

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

1036

Comparative Political Studies 45(8)

scholars. The first is the Polity IV democracy score, which operationalizes the degree of democracy on a 10 (full autocracy) to +10 (full democracy) scale. Following several studies in political science (see, e.g., Mansfield, Milner, & Rosendorff, 2000), I define country-years for which the Polity IV measure of democracy is greater than or equal to +6 as democratic countryyears. As shown in Table 1, this yields a sample of 64 developing countries that are defined as democracies during from 1984 to 2004. The samples start and end dates were determined primarily by the availability of country-year data on corruption and on legislative rules described later. For robustness tests, I use the Przeworski, Alvarez, Cheibub, and Limongi (2000) dichotomous democracy measure to define the sample of developing country democracies. This measure codes a country-year as 1 for a democracy if the chief executive is elected, the legislature is elected, there is more than one political party, and alternation in power occurs between political parties. I also assessed whether my results remained robust in a sample of developing country-years in which the Polity IV measure of democracy is greater than or equal to +8. Results from the sample robustness tests mentioned above are reported below. The dependent variable in Hypotheses 1 and 2 is the level of corruption. Extant studies of corruption primarily employ two measures of corruption for empirical tests: the International Country Risk Guide (ICRG) corruption index and TIs Corruption Perceptions Index (CPI).11 The ICRG index defines corruption as actual or potential corruption in the form of excessive patronage, nepotism, job reservations, favor-for-favors, secret party funding, and suspiciously close ties between politics and business. Since the ICRG index measures the aggregate corruption level in a country composed of both political and administrative corruption, it is an appropriate operationalization of corruption discussed earlier. Scores range from 0 to 6, where a higher score means less corruption.12 To facilitate interpretation of the results, I inverted and rescaled the ICRG corruption measure on a 0 (lowest corruption level) to 6 (highest corruption level) scale. The rescaled ICRG corruption measure, labeled as ICRG corruption, serves as the main dependent variable for testing the two hypotheses and is available for the countries in Table 1 during the 19842004 time period. For robustness tests, I used TIs CPI as an alternative measure for the dependent variable. This index measures corruption as the perceptions of the degree of corruption as seen by business people, risk analysts and the general public and explicitly includes perceptions of political and administrative corruption. The level of corruption in TIs corruption index ranges from 0 to 10, where a higher score means less corruption.13 I also rescale and invert

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

Yadav

1037

Table 1. List of Countries in Sample Years observed as democracy 19922004 19842004 19912004 19912004 19842004 19912004 19842004 19842004 19902004 19902004 19842004 19921996 19842004 19902004 19842004 19842004 19842004 19912004 19992004 19842004 Years observed as democracy Years observed as democracy 19842004 19841989 19862004 19892004 19902004 19912002 19982004 19962004 19902004 19932004 19892004 19912004 19952004 19922004 19842004 19842004 19841986 19912004 19852004 19842001 19912004

Country Albania Argentina Armenia Bangladesh Barbados Benin Bolivia Brazil Bulgaria Chile Colombia Congo Costa Rica Czech republic Dominican republic Ecuador El Salvador Estonia Ghana Grenada

Country Guatemala Guyana Haiti Honduras Hungary India Indonesia Jamaica S. Korea Latvia Lithuania Madagascar Malawi Mali Mauritius Mexico Namibia Nepal Nicaragua Niger Nigeria Pakistan Panama

Country

19862004 Papua New Guinea 19922004 Peru 19942004 Philippines 19822004 Poland 19912004 Romania 19842004 Russia 19992004 Rwanda 19842004 Sierra Leone 19882004 South Africa 19912004 Slovak Republic 19912004 Sri Lanka 19932004 Surinam 19942004 Taiwan 19922004 Thailand 19842004 Trinidad & Tobago 19992004 Turkey 19902004 Uganda 19912004 Ukraine 19842004 Uruguay 19931995 Venezuela 19992004 Zambia 19881999 19892004

Examples of countries coded 1 on agenda setting are Bangladesh, Barbados, India, Mexico, Nepal and South Africa. Examples of countries coded as 1 on expel dissidents are Ghana, Guyana, India, Pakistan, Uganda and Zambia.

TIs corruption measure on a 0 (lowest corruption level) to 10 (highest corruption level) scale. This rescaled measure, denoted as TI corruption, is available for my sample from 1995 to 2004.

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

1038

Comparative Political Studies 45(8)

The two measures of corruption that I employ for the dependent variable have numerous advantages. First, the ICRG and TI corruption measures include perceptions of both political and bureaucratic corruption and have therefore been widely used as proxies for aggregate corruption.14 Second, the ICRG corruption variable is highly and significantly correlated with TI corruption. Third, their virtues include their strong correlation with political and administrative corruption and their extensive coverage of countries and periods. Indeed, the ability of these indices to successfully capture political and administrative corruption can be gauged by analyzing the correlations between the ICRG and TI indices and finer measures of political and bureaucratic corruption. Unfortunately, finer measures of political and bureaucratic corruption such as sale of parliamentary votes, illegal campaign finance, administrative corruption and, patronage are only available for a handful of countries, 17 democracies in Eastern and Central Europe through the 2002 Business Enterprise Environment Surveys and 10 developing democracies in Asia, Africa and Latin America through the 2002 World Business Environment Survey and, have varying non-response rates. Nevertheless, these measures show significant correlations with ICRG and TI indices and thus support their use as aggregate measures of corruption that include both political and bureaucratic corruption. Since both of the corruption measures described above are bounded and the dependent variable is censored at 6 for ICRG corruption and at 10 for TI corruption, I follow Greenes (2003) advice and estimate Tobit models to account for this censoring. The Tobit models are estimated with a lagged dependent variable to correct for serial correlation and with country fixed effects to account for unobserved heterogeneity. However, given that the two independent variablesagenda setting and expel dissidentsare largely time invariant (or rarely changing), the estimates obtained for these variables from the fixed effects models may be unreliable and inefficient (Wooldridge, 2002). Therefore, I adopt two strategies to address the aforementioned econometric challenge. First, I also evaluate the effect of agenda setting and expel dissidents on the dependent variable in Tobit models estimated with random effects; the lag of the dependent variable is included in the random effects models to correct for serial correlation. Second, Plmper and Troeger (2007) recently proposed an alternative estimator called the fixed effects vector decomposition (FEVD) model that allows researchers to obtain reliable and efficient point estimates of time-invariant and rarely changing variables in panel data sets. Stated briefly, the FEVD estimator decomposes the unobserved unit fixed effect into two segments: an unexplained part and a part explained by the time-invariant or rarely changing variables.

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

Yadav

1039

The FEVD estimation technique involves three stages. In the first stage, the procedure estimates the unit fixed effects by running a fixed effects estimate of the baseline model. In the second stage, the procedure splits the unit effects into explained and unexplained parts by regressing the unit effects on the time-invariant and rarely changing variables of the original model. The third (the main) stage performs a pooled ordinary least squares (OLS) estimation of the baseline model (where ICRG corruption is the dependent variable) that includes time-variant variables, time-invariant variables, and the unexplained part of the fixed effects vector. This third stage allows scholars to compute correct standard errors for the coefficients of the time-invariant and rarely changing variables as well as adjust for serial correlation of the errors. Hence, for the second strategy I follow Plmper and Troeger (2007) and estimate FEVD models to test the effect of agenda setting and expel dissidents on the dependent variable. Specifically, I report below the estimates from the third (the main) stage of the FEVD models with panel-corrected standard errors (PCSEs) and in which serial correlation is corrected for via the Prais Winsten AR(1) procedure. I also evaluated the two hypotheses in time series cross section (TSCS) regression models that are estimated with the lagged dependent variable, country fixed effects, and PCSEs. The TSCS regression model results are not presented here to save space but are consistent with the estimates obtained from the Tobit and FEVD models.

Independent and Control Variables


Testing Hypothesis 1 requires a measure that captures whether or not political parties can control agenda setting by controlling the introduction of drafted bills in the legislature. To test Hypothesis 1, I code the dummy independent variable agenda setting as 1 when the legislative rule formally permits political parties to control the introduction of drafted bills to the legislature; it is coded 0 otherwise. Testing Hypothesis 2 requires a measure that captures whether or not parties have the institutional power to expel party members who vote against the diktat of the party whip from their legislative mandate. To test Hypothesis 2, I code the dummy independent variable expel dissidents as 1 when legislative rules formally allow parties to expel such dissidents from their seats and as 0 otherwise. I expect from the two hypotheses that agenda setting (Hypothesis 1) and expel dissidents (Hypothesis 2) will have a positive effect on corruption. Several primary and secondary sources have been used to code agenda setting and expel dissidents. Because of space constraints here, these sources are listed in the appendix. I also briefly list in Table 1 the countries in my

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

1040

Comparative Political Studies 45(8)

sample that are coded as 1 for each of the two independent variables during the 19842004 period. It is worth noting here that substantial variation exists in agenda setting and expel dissidents in the data set. Moreover, the correlation between agenda setting and expel dissidents is only .32 and is statistically insignificant. I include a litany of economic, political, and legal control variables that, according to existing studies, may influence the level of corruption. With respect to political controls, I incorporate a dummy variable for countries with presidential systems (labeled presidential democracy) as presidential democracies are expected to have higher corruption levels by some scholars (Gerring & Thacker, 2008; Kunicova & Rose-Ackerman, 2005; Montinola & Jackman, 2002) and lower corruption levels by others (Persson & Tabellini, 2003). I add democracy age, which captures the number of years of uninterrupted democratic rule for each country in the sample, as it may have a negative effect on corruption (Kunicova & Rose-Ackerman, 2005; Treisman, 2000). The HirschmanHerfindahl index of the effective number of political parties in the legislature (ENLP) is added to the model as it may have a positive influence on corruption (Chang & Golden, 2007). I include an interaction term magnitude open list PR (and the individual components of this interaction term) created by interacting log of district magnitude with a dummy coded 1 if the country employs an open list proportional representation (PR) electoral system to the empirical model. Magnitude open list PR is expected to have a positive effect on corruption (Chang & Golden, 2007). I also add veto players, drawn from the checks variable in the World Banks (2010) Database of Political Institutions, and the dummy variable federal (coded 1 for federal democracies) to the specification as these covariates might influence the level of corruption (Adsera, Boix, & Payne, 2000; Seldadyo & de Haan, 2006). With respect to economic variables, studies suggest that higher per capita income, more trade openness, and higher education all have a negative effect on corruption (Fisman & Gatti, 2002; Seldadyo & de Haan, 2006; Tavits, 2007; Treisman, 2000). Thus, I include log GDP per capita, trade openness (ratio of total sum of export and imports to GDP), and education, which is operationalized as the secondary school gross enrollment rate for all citizens. I include log inflation and size of government (total central government expenditure as a percentage of GDP) as these variables may have a positive effect on corruption (Braun & Tella, 2000; Fisman & Gatti, 2002; Seldadyo & de Haan, 2006). The dummy variables legal_UK (coded 1 for countries with a British common-law-type system) and colony_UK (coded 1 for former British colonies) are added to the specification as these variables may have

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

Yadav

1041

a negative impact on corruption (see Brunetti & Weder, 2003; La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1999). Ethno-linguistic fractionalization (ELF) is included as well since studies suggest that it may positively influence corruption (Chang & Golden, 2007; Tavits, 2007; Treisman, 2000). The variable Protestant, which captures the share of the population with a Protestant religious tradition, is also included and is predicted to have a negative effect on corruption (Chang & Golden, 2007; Treisman, 2000).

The Empirical Results


Columns 13 in Table 2 report the results from the modelswhere ICRG corruption is the dependent variableestimated for the Polity-defined sample of developing democracies. Columns 1 and 2 present the Tobit model results estimated with fixed effects (column 1) and random effects (column 2), whereas column 3 reports the results from the FEVD model. Agenda setting is positive and significant at the 1% level in the Tobit and FEVD models in columns 13, which statistically corroborates Hypothesis 1. Expel dissidents is positive and significant at the 1% level in the Tobit and FEVD models, which statistically supports Hypothesis 2. To get a better sense of the substantive impact of the independent variables, I first derived the marginal effect of agenda setting and then expel dissidents from the specification in column 1. Increasing agenda setting from 0 to 1 (since agenda setting is a dummy variable) while holding other variables in the specification in column 1 at their respective mean in the sample increases the predicted level of ICRG corruption from 0.6 to 2.6 (on the 0 to 6 ICRG corruption scale). This effect, which is illustrated in Figure 1, is substantial and statistically significant at the 95% confidence level. Increasing expel dissidents from 0 to 1 (as expel dissidents is a dummy variable) while holding other variables in the specification in column 1 at their respective means increases the predicted ICRG corruption level from 0.8 to 3, which is substantial.15 This marginal effect is statistically significant at the 95% confidence level and is confirmed by the illustration in Figure 2. I derived another figure, Figure 3, which plots the moving average of ICRG corruption for the set of countries in the sample that experienced a change from a situation in which political parties did not have the institutional power to control agenda setting and expel dissident party members to a situation where the legislative rules permitted parties to control agenda setting and expel party dissidents. This figure thus compares the corruption level that exists before the adoption of rules that permit parties to control agenda setting and expel party dissidents to the degree of corruption that occurs after the

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

Table 2. Main Results for Polity-Based Sample of Developing Country Democracies


Dependent variable: ICRG corruption Tobit with random effects FEVD model Column 3 0.1568*** (0.0324) 0.2257*** (0.0779) 0.0771*** (0.0165) 0.1151 (0.1329) 0.0924** (0.0418) 0.0975 (0.3141) 0.0520 (0.1251) 0.0173 (0.0854) 0.0089 (0.0121) 0.0140 (0.0193) 0.0094** (0.0045) 0.0039* (0.0021) 0.0727 (0.2558) 0.3226*** (0.0361) 0.1115*** (0.0399) 0.1382 (0.1519) 0.1425** (0.0641) 0.1181 (0.1196) 0.0665 (0.0814) 0.0285 (0.0341) 0.0142 (0.0336) 0.0167 (0.0170) 0.0166** (0.0080) 0.0060** (0.0029) 0.0174*** (0.0067) 0.1173 (0.1092) 0.0226 (0.0590) 0.0194 (0.0278) 0.0030 (0.0057) 0.0321 (0.0550) 0.0081 (0.0096) 0.0265 (0.0226) 0.5415*** (0.0731) .643 792 0.0093 (0.0215) 0.0425 (0.0676) 0.1042** (0.0527) 0.0022 (0.0047) 0.0207 (0.0631) 0.0045 (0.0080) 0.0181 (0.0624) 0.4922*** (0.1759) .638 783 Column 4 Column 5 Tobit with fixed effects FEVD model Column 2 0.1922*** (0.0419) 0.3855*** (0.0519) 0.1321*** (0.0482) 0.1870 (0.2198) 0.1714** (0.0863) 0.1529 (0.2288) 0.0704 (0.0510) 0.0394 (0.0899) 0.0185 (0.0227) 0.0192 (0.0255) 0.0178*** (0.0052) 0.0074** (0.0035) 0.0193*** (0.0058) 0.1726 (0.2325) 0.0321 (0.0386) 0.0227 (0.0229) 0.0037 (0.0060) 0.0609 (0.0826) 0.0093 (0.0087) 0.0361 (0.0488) 0.6776*** (0.1854) .590 819

1042
0.2954*** (0.0431) 0.0924*** (0.0306) 0.1202 (0.1653) 0.1256** (0.0608) 0.1033 (0.1210) 0.0612 (0.0735) 0.0421 (0.0311) 0.0111 (0.0397) 0.0153 (0.0180) 0.0123** (0.0059) 0.0045** (0.0022) 0.1025 (0.1146) 0.0168 (0.0226) 0.0537 (0.0511) 0.1322** (0.0605) 0.0025 (0.0062) .0303 (0.0440) 0.0068 (0.0081) 0.0202 (0.0295) 0.3115*** (0.0628) .687 792

Tobit with fixed effects

Column 1

Lagged DV Agenda setting Expel dissidents Size of govt. Log GDP per capita Education Trade openness Log inflation Democracy age Veto players Presidential ENLP Magnit. open list pr Magnitude Open list pr Federal Cl pr Cl pr presidential Colony_UK Legal_UK ELF Protestant Constant Adjusted R2 Observations

0.1674*** (0.0504) 0.3117*** (0.0422) 0.0882*** (0.0204) 0.1237 (0.1165) 0.1102** (0.0511) 0.1037 (0.3603) 0.0588 (0.1036) 0.0203 (0.0792) 0.0102 (0.0138) 0.0151 (0.0182) 0.0114*** (0.0039) 0.0051** (0.0026) 0.0144*** (0.0052) 0.0907 (0.2452) 0.0109 (0.0148) 0.0116 (0.0188)

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

0.0026 (0.0024) 0.0244 (0.0745) 0.0072 (0.0091) 0.0214 (0.0525) 0.6052*** (0.2331) .621 783

ICRG = International Country Risk Guide. Numbers in parentheses in columns 1, 2, and 4 are heteroscedasticity-robust standard errors. Fixed effects vector decomposition (FEVD) model is estimated via the PraisWinsten AR(1) method and with panel-corrected standard errors. *p < .1. *p < .05. *p < .01.

Yadav

1043

agenda setting = 0

agenda setting = 1

6 ICRG corruption 5 4 3 2 1 0 marginal effect marginal effect

Figure 1. Effect of agenda setting on International Country Risk Guide (ICRG) corruption

expel dissidents = 0

expel dissidents = 1

6 ICRG corruption 5 4 3 4 1 0 marginal effect marginal effect

Figure 2. Effect of expel dissidents on International Country Risk Guide (ICRG) corruption

introduction of rules that allow parties to control agenda setting and expel party dissidents.16 Figure 3 reveals that the degree of ICRG corruption indeed increased in the set of developing country democracies after the adoption of

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

ICRG corruption

1044
introduction of agenda setting at t years after introduction of agenda setting years after introduction of expel dissidents introduction of expel dissidents at t

corruption before and after introduction of agenda setting

corruption before and after introduction of expel dissidents

years prior to agenda setting

years prior to expel dissidents

0 t-2 t-1 t t+1 Time

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

t-5

t-4

t-3

t+2

t+3

t+4

t+5

t+6

Figure 3. Moving average of corruption and party control over agenda setting and expelling party dissidents

ICRG = International Country Risk Guide.

Yadav

1045

legislative rules that allowed parties to (a) control agenda setting and (b) expel party dissidents. A simple difference-of-means test indicates that the mean ICRG corruption level in countries after they adopted agenda setting power for parties is 4.36, which is substantially and significantly (in the statistical sense) higher than the mean ICRG corruption level of 3.19 before the adoption of agenda-setting power for parties in these countries. The difference-of-means test also shows that the mean ICRG corruption level in countries after the adoption of rules that permitted parties to expel party dissidents is 4.27. This is substantively and statistically higher than the mean ICRG corruption level of 3.09 before the introduction of legislative rules that allowed parties to expel party dissidents. Thus, Figures 13 and these difference-of-means test results further substantiate the theoretical claims stated earlier. As a test of robustness, I included the interaction term CLPR presidential where the CLPR dummy is coded as 1 if the country employs a closed list PR electoral system (the presidential dummy was described earlier)and the individual components of this interaction term to the specification.17 This helped me to check whether my main results remain robust after introducing this interaction term and to assess Kunicova and Rose-Ackermans (2005) claim that closed list PR presidential democracies are likely to have higher levels of corruption. The impact of agenda setting and expel dissidents on ICRG corruption remains positive and significant at the 1% level in the specification in columns 4 (Tobit model) and 5 (FEVD model) in which I included the CLPR presidential interaction term. The estimate of CLPR presidential in columns 4 and 5 is positive and significant in the Tobit and FEVD models, which corroborates Kunicova and Rose-Ackermans claim. The results obtained for the control variables are mixed. Trade openness, log inflation, size of government, and education are consistently insignificant in the models in Table 2. Log GDP per capita is, however, negative and statistically significant. Presidential democracy is positive and statistically significant in the specifications in Table 2. The estimate of ENLP and magnitude open list PR is positive and highly significant in columns 15. This substantiates Chang and Goldens (2007) claim that a higher number of political parties has a positive impact on corruption and that greater district magnitude positively influences corruption in PR countries with an open-list system. ELF, veto players, and Protestant are statistically insignificant. It is surprising that colony_UK and legal_UK are positive but statistically insignificant.

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

1046

Comparative Political Studies 45(8)

Robustness Checks
I first checked whether the main results remain robust in a sample of developing country democracies defined using the Przeworski et al. (2000) dichotomous measure of democracy. Agenda setting and expel dissidents continue to have a positive and highly significant effect on ICRG corruption in the sample mentioned above (Table 3, column 6). The effect of agenda setting and expel dissidents on ICRG corruption also remains positive and significant at the 1% level in a sample of developing country democracies that are defined as democracies only if their score in the Polity index is +8 (see column 7).18 Second, the following controls are added to the specification: a dummy variable for countries with a German legal origin (legal_German), a dummy variable for parliamentary democracies, a 0100 index of media freedom (drawn from Freedom House, 2007), natural resource endowment that operationalizes the fraction of GDP produced in the mining and quarrying sectors and in the production of oil for each country-year, a rule of law measure developed by Kaufmann, Kraay, and Mastruzzi (2009), and the variable political competition (taken from Politys 05 PARCOMP measure). The literature predicts that media freedom and legal_German may help to lower corruption (Adsera, Boix, & Payne, 2000; La Porta et al., 1999). I incorporate natural resource endowment because greater reliance on a countrys endowment of natural resources may have a positive impact on corruption (Leite & Weidmann, 1999). The parliamentary dummy is added to the model (and presidential democracies are treated as the reference category) as Gerring, Thacker, and Moreno (2009) hypothesize that parliamentary democracies are associated with better governance and more effective control of corruption relative to presidential systems. Last, competition and rule of law are included in the model to account for the possibility that a more efficacious legal system (captured by the rule of law measure) and greater levels of political competition may dampen the incentives for politicians to engage in corruption (Brunetti & Weder, 2003; Kaufmann et al., 2009). The fixed effects Tobit modelestimated for the sample of developing democracies for which Polity +6with the additional controls listed above indicates that the effects of agenda setting and expel dissidents on ICRG corruption remain positive and significant at the 1% level in column 8.19 I also find, but do not report to conserve space, that the impact of agenda setting and expel dissidents on ICRG corruption is positive and highly significant in the expanded specification with the additional controls when it is estimated via random effects Tobit and the FEVD procedure. The parliamentary dummy has the predicted negative sign and is statistically significant in

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

Table 3. Robustness Test Results

Sample based on Przeworski et al. democracy criteria Sample of democracies for Polity +6 ICRG corruption FEVD model Column 10 0.2194*** (0.0717) 0.0837*** (0.0194) 0.1540 (0.0886) 0.1245** (0.0622) 0.0971 (0.0714) 0.0917 (0.0825) 0.0365 (0.0282) 0.0197 (0.0115) 0.0112 (0.0117) 0.0120 (0.0339) 0.0074* (0.0039) 0.0319 (0.0263) 0.0094*** (0.0027) 0.0085 (0.0141) 0.0021 (0.0037) 0.0125 (0.0587) 0.0194** (0.087) .0085** (0.0040) 0.0514 (0.0455) 0.0166*** (0.0045) 0.0131 (0.0102) 0.0055 (0.0068) 0.0211 (0.0537) 0.0255** (0.0116) TI corruption

Sample of democracies for Polity +8

ICRG corruption

ICRG corruption 2SPLS 2nd stage Column 11

Column 7 0.1179*** (0.0492) 0.1659*** (0.0436) 0.0566*** (0.0214) 0.1076 (0.1122) 0.0936* (0.0540) 0.0712 (0.0757) 0.0363 (0.0894) 0.0271 (0.0191) 0.0112 (0.0190) 0.0101 (0.0134) 0.0083 (0.0252) 0.0041* (0.0022) 0.0373 (0.0341) 0.0102*** (0.0035) 0.070 (0.0112) 0.0019 (0.0043) 0.0159 (0.0663) 0.0208** (0.099) 0.1068*** (0.0340) 0.1834*** (0.0580) 0.0609*** (0.0251) 0.1174 (0.1216) 0.1053* (0.0624) 0.0833 (0.0842) 0.0312 (0.0696) 0.0216 (0.0418) 0.0148 (0.0163) 0.0081 (0.0099) 0.065 (0.0206) Column 8 Column 9

Tobit with fixed effects Tobit with fixed effects Tobit with fixed effects Tobit with fixed effects

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

Column 6

0.1348*** (0.0246) 0.1981*** (0.0371) 0.0621*** (0.0257) 0.1089 (0.1217) 0.1024* (0.0601) 0.0837 (0.0768) 0.0479 (0.0801) 0.0282 (0.0324) 0.0133 (0.0329) 0.0097 (0.0084) 0.0095 (0.0171) 0.0094** (0.046) 0.0054** (0.0029) 0.0415 (0.0530) 0.0107*** (0.0040) 0.0097 (0.0155) 0.0027 (0.0029) 0.0197 (0.0801)

0.1524*** (0.0439) 0.2048*** (0.0459) 0.0771*** (0.0186) 0.1288 (0.1334) 0.1139** (0.0523) 0.0982 (0.0977) 0.0681 (0.0745) 0.0317 (0.0264) 0.0149 (0.0181) 0.0125 (0.0079) 0.0114 (0.0229) 0.0111** (0.0053) 0.079** (0.037) 0.0706 (0.0833) 0.0123*** (0.0039)

0.1142*** (0.0379) 0.1721*** (0.0529) 0.0580*** (0.0203) 0.1059 (0.0821) 0.0995 (0.0748) 0.0535 (0.0682) 0.0416 (0.0622) 0.0192 (0.0187) .096 (0.0182) 0.0063 (0.0057) 0.0047 (0.0218) 0.0032 (0.0036) 0.0283 (0.0225) 0.0080** (0.0041) 0.0066 (0.0147) 0.0022 (0.0024) 0.0109 (0.0405) 0.0162** (0.0073)

Lagged DV Agenda setting Expel dissidents Size of government Log GDP per capita Education Trade openness Log inflation Veto players Federal Democracy age Presidential ENLP Magnitude Magnit. open list PR Open list PR Colony_UK Legal_UK Parliamentary

0.0083 (0.0129) 0.0023 (0.0030) 0.0172 (0.0855)

1047

(continued)

1048
Sample of democracies for Polity +6 ICRG corruption FEVD model Column 10 0.0107 (0.0073) 0.0225 (0.0271) 0.0146*** (0.0058) TI corruption ICRG corruption 2SPLS 2nd stage Column 11 0.0045 (0.0110) 0.0112 (0.0310) 0.0059 (0.0184) Column 7 0.0058 (0.0073) 0.0168 (0.0329) 0.0103*** (0.0032) 0.0061 (0.0089) 0.0190 (0.0410) 0.0115*** (0.0037) Column 8 Column 9 0.0010 (0.0012) 0.0261 (0.0599) 0.0327 (0.0803) 0.0136 (0.0132) 0.2126*** (0.0453) .611 692 0.0009 (0.0065) 0.0218 (0.0334) 0.0258 (0.0736) 0.0114 (0.0186) 0.2378*** (0.0337) .652 539 0.0025 (0.0026) 0.0307 (0.0512) 0.0492 (0.0672) 0.0189 (0.0177) 0.4165*** (0.0532) .611 528 0.0022 (0.0021) 0.0170 (0.0264) 0.0295 (0.0272) 0.0092 (0.0161) 0.2378*** (0.0544) .637 689

Table 3. (continued)

Sample based on Przeworski et al. democracy criteria

Sample of democracies for Polity +8

ICRG corruption

Tobit with fixed effects Tobit with fixed effects Tobit with fixed effects Tobit with fixed effects

Column 6

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

ELF Protestant Natural resource end. Legal_German Rule of law Competition Media freedom Constant Adj-R2 Observations

0.0065 (0.0097) 0.0175 (0.0306)

0.0082 (0.0099) 0.0193 (0.0421)

0.3334*** (0.0746) .633 755

0.2598*** (0.0711) .642 587

ICRG = International Country Risk Guide; TI = Transparency International. Tobit models estimated with heteroscedasticity-robust standard errors. Fixed effects vector decomposition (FEVD) models are estimated via PraisWinsten AR(1) method and panel-corrected standard errors. Results from only the second stage of the two-stage probit least squares (2SPLS) model (estimated with fixed effects) to save space. The standard errors in the 2SPLS model are corrected via Achens (1986) weighting cor2 rection procedure as follows. First, denote the variance of the residuals from the second-stage continuous (IV) regression as . Second, compute the variance of a v slightly different set of residuals using the continuous variable coefficients estimated in the second stage, but after substituting the actual values of the original endogenous 2 explanatory variables on the right-hand side; denote this residual variance as . Third, multiply each standard error from the second stage continuous IV regression by s the weighting factor 2 2 to obtain accurate standard errors. *p < .1. *p < .05. *p < .01.

Yadav

1049

column 8. I estimated additional models after including four more controls to the specification: a plurality dummy for countries with a plurality electoral system, Johnson and Wallacks (2007) measure of political particularism, log population, and a linear time trend.20 I do not report the results obtained after including these additional controls because of space constraints, but the main results reported above were unchanged. The estimates of agenda setting and expel dissidents are also positive and significant at the 1% level in the specification in columns 9 (Tobit model) and 10 (FEVD model) in which the TI corruption measure is the dependent variable. The key results thus remain robust when TI corruption is employed as an alternative measure for the dependent variable. The effect of agenda setting and expel dissidents on each measure of corruption used here remains positive and highly significant in spatial lag and spatial error OLS models.21 Diagnostic tests conducted for the empirical models reveal that they do not suffer from severe multicollinearity, serial correlation, or omitted variable bias.22 Finally, a potential endogeneity problem may exist in the data since developing country democracies that are more corrupt to begin with may adopt legislative rules that allow parties to control agenda setting and expel party dissidents. Correcting for this endogeneity problem is not straightforward given the difficulty of finding valid instruments for the two potential endogenous dummy independent variables: agenda setting and expel dissidents. Yet I attempt to address the endogeneity problem mentioned above in two main ways. First, I test the two hypotheses via a system generalized method of moments (GMM) model as this approach corrects for potential endogeneity by using moment conditions to derive a set of valid instruments for the potentially endogenous explanatory variables (Blundell & Bond, 1998). Results from the system GMM model (not reported to save space) provide strong statistical support for Hypotheses 1 and 2. Second, following Alvarez and Glasgow (2000, pp. 150-152), I use the two-stage probit least squares (2SPLS) approach that can be applied to correct for endogeneity between a continuous dependent variable and binary endogenous regressors on the right-hand side. For the first step of the 2SPLS approach, I estimated a first-stage probit equation for each of the two endogenous explanatory variables separately; the respective probit models thus estimate the likelihood of adoption of agenda setting and expel dissidents. Numerous covariates are included in the first-stage probit equation that predict the conditions under which developing democracies are more likely to introduce the legislative rules being discussed here. I then derived the predicted values of agenda setting and expel dissidents from the respective firststage probit models that serve as instruments for the potentially endogenous

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

1050

Comparative Political Studies 45(8)

legislative rule variables in the second-stage instrumental variable (IV) regression of the 2SPLS model where the dependent variable is ICRG corruption. The coefficients of the instrumented agenda setting and expel dissidents are positive and highly significant in the second-stage IV regression of the 2SPLS model reported in column 11 (Table 3). The results from the system GMM and the 2SPLS models thus statistically support the two hypotheses. But the estimates reported from these model should be treated with caution as these two estimators may not adequately account for endogeneity problems in TSCS data sets (such as the one used here) where the explanatory variables are time invariant or rarely changing.

Conclusion
The primary question driving this article was whether legislative institutions play a significant role in influencing corruption levels in developing country democracies. The empirical evidence presented above provides strong evidence that party-focused agenda setting and dissident expulsion rules create patterns of elite behavior that can be more conducive to corrupt practices. These results are robust and hold after controlling for various institutional and socioeconomic sources of corruption scholars have identified as influential. Recall that these two legislative rules show a correlation of only .32 with each other and are weakly correlated with types of executive regime or electoral rules. Thus, these findings expand our understanding of how the arrays of institutional choices countries makeelectoral, executive, federal and legislativeaffect levels and types of corruption. These results also speak to one of the central debates regarding corruption the role political parties play in it. Many scholars have argued that in systems with strong parties, corruption will be lower either because far-sighted leaders use party discipline to ensure corruption free behavior by their members to attract voters or because corrupt party leaders with concentrated rent extraction powers are more efficient at exploiting common pool party assets (Gerring & Thacker, 2008; Shleifer & Vishny, 1993). In contrast, this article suggests that to the extent higher legislative policy influence strengthens party leaders, stronger parties can raise corruption. This suggests that rather than modeling party leaders as managers of a fixed common pool of party resources, we may want to explore their role as managers who can use legislative influence to realize increasing returns to party assets, thus creating more productive rent generating processes leading to more corruption. Finally, the impact of party control over agenda-setting on corruption found here is similar to Italy where parties used their gate keeping powers in

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

Yadav

1051

the legislature to extract rent and dispense patronage on behalf of parties (Bull and Newell, 2003; Della Porta & Vanucci, 1999; LaPalombara, 1964, 1994). This suggests that research on legislative politics in developed democracies can be fruitfully applied to study issues in developing country legislatures as these legislatures can have important policy effects. Conversely, the insights on partisan control over dissident expulsions from developing democracies found in this article should be applied to developed country democracies to study their potential impact on corruption for that set of countries. The new data set on legislative rules this article introduces should facilitate both research agendas considerably.

Appendix Primary and Secondary Sources Used to Code the Independent Variables
Banks, Arthur S. Political handbook of the world. New York, NY: McGraw-Hill. Banks, Arthur S., Day, Alan J., & Muller, Thomas C. (1997). Political handbook of the world 1997. New York, NY: McGraw-Hill. Hein Online World Constitutions Illustrated. Buffalo, NY: Hein. Retrieved from http://home.heinonline.org/ Herman, Valentine. (1976). Parliaments of the world: A reference compendium. New York, NY: Aldine. Inter-Parliamentary Union. (1986). Parliaments of the world: A comparative reference compendium (2nd ed.). Aldershot, UK: Gower. Inter-Parliamentary Union. (n.d.). Parline database. Retrieved from http://www.ipu. org/english/home.htm Keesings Limited. Keesings contemporary archives. London, UK: Author. Library of Congress. (2010). Country studies. Retrieved from http://lcweb2.loc.gov/ frd/csquery.html Loewenberg, Gerhard, Squire, Peverill, & Kiewiet, D. Roderick. (Eds.). (2002). Legislatures: Comparative perspectives on representative assemblies. Ann Arbor: University of Michigan Press. Worldmark Encyclopedia of Nations. (1995). Florence, KY: Gale.

Declaration of Conflicting Interests


The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

1052 Funding

Comparative Political Studies 45(8)

The author received no financial support for the research, authorship, and/or publication of this article.

Notes
1. See Treisman (2000, 2007), Kunicova (2006), Svensson (2005), Gerring and Thacker (2008), Montinola and Jackman (2002), and Adsera, Boix, and Payne (2000) for extensive discussions of the theoretical foundations, including institutional analysis and empirical evidence shaping this debate. 2. For example, a survey of business executives in 102 countries revealed that 73% of respondents had paid bribes to influence policy making and fully 89% of those believed their bribes had some direct influence on policy making (Kaufmann & Vicente, 2008). Also see Bryan and Baer (2005) and U.S. Agency for International Development (USAID, 2003). 3. See, for example, Cox and McCubbins (2007) for the United States and Neto, Cox, and McCubbins (2003) for Brazil. 4. For this, see USAID (2003), Bryan and Baer (2005), and Pinto-Duschinsky (2002). 5. See, for example, Rose-Ackerman (1999), USAID (2003), and Bryan and Baer (2005). 6. Bull and Newell (2003), Della Porta and Vanucci (1999), and LaPalombara (1964, 1994), for example, find that parties in Italy use their agenda gatekeeping powers to raise funds and dispense patronage to interest groups as well. 7. For discussions on bureaucratic delegation, see Huber and Shipan (2002), and for judicial delegation, see Vanberg (2008). 8. See Rose-Ackerman (1999), Hellman and Kaufmann (2000), Johnston (2005), and Transparency International (TI, 2007). 9. Harstad and Svensson (2006) and Campos and Giovannoni (2007) analyze the alternatives of lobbying politicians and bribing bureaucrats but not of lobbying both, bribing both, or lobbying bureaucrats and bribing politicians. This article considers this larger choice set lobbies have. As the argument here makes clear, however, an independent choice to lobby political principals or bribe bureaucrats will be available only when parties are too weak to capture the bureaucracy. 10. Fewer than one third of 430 elite respondents in 22 developing democracies reported the existence of an internal accounting system in their parties, citing the necessity of hiding accounts from auditors as the reason this practice (Bryan & Baer, 2005). 11. For example, Thacker (2009), Chang and Golden (2007), and Sandholtz and Koetzle (2000). 12. For more details on the International Country Risk Guide (ICRG) corruption measure, see www.prsgroup.com/ICRG_Methodology.aspx.

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

Yadav

1053

13. For each year, the TI score of corruption for each country is based on multiple surveys from seven different institutions. These surveys are highly positively correlated, suggesting that the independent surveys genuinely measure some common features of a countrys environment (Lambsdorff, 1998). 14. See, for instance, Thacker (2009) and Chang and Golden (2007). 15. I also calculated the marginal effects of my two independent variables on corruption in (a) the set of democracies in my sample in which the number of veto players falls below the sample mean of 3.51 and in the set where the number of veto players is above the sample mean and (b) in the set of democracies in which the effective number of parties (ENLP) falls below the sample mean of 3.83 and for the set of democracies for which ENLP is above the sample mean. The magnitude of the marginal effect on corruption is largely similar across the subsamples in (a) and across the subsamples in (b). 16. The developing democratic country-year panel employed for the tests indicates that approximately (a) 35% of the countries changed their legislative rule to introduce agenda setting power for parties in the legislature and (b) 38% of the countries changed their legislative rule to allow political parties to expel party members who vote against the diktat of the party whip. 17. Since the reference category for the CLPR dummy includes developing democracies with an open list PR system (and also other democracies with a non-PR system), I did not include the open list PR dummy in the specification that includes the CLPR presidential interaction term. However, the results reported in the specification with the aforementioned interaction term remain robust even after including the open list PR dummy. 18. Increasing agenda setting (expel dissidents) from 0 to 1while holding other variables in the specification at their meanin the model for the sample of developing country democracies for which the Polity score is +8 increases ICRG corruption from 0.4 (0.7) to 2.6 (2.9). 19. Increasing agenda setting (expel dissidents) from 0 to 1while holding other variables in the specification in column 8 at their meanincreases ICRG corruption from 0.6 (2.2) to 0.8 (2.7). 20. The correlation of particularism with agenda setting is .24 and with expel dissidents is .19. 21. The results are available on request. 22. The BreuschGodfrey LM test failed to reject the null of no serial correlation in the models, whereas the RESET test revealed that there was no omitted variable bias problem. The correlation between the independent variables and the time-invariant political controls in the model is low and statistically insignificant. Specifically, in my country-year sample of developing democracies, the correlation between agenda setting and federal is .28, presidential is .34, parliamentary is .29, open list PR is .19, UK colony is .11, and ELF is .08. Likewise,

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

1054

Comparative Political Studies 45(8)

in my time series cross section sample, the correlation between expel dissidents and federal is .20, presidential is .26, parliamentary is .36, open list PR is .19, UK colony is .14, and ELF is .07. Furthermore the correlation between each of my two independent variables and each of the remaining control variables in the specification is low and statistically insignificant. The largest and mean variance inflation factor value in the models is less than 10 and greater than 1, respectively; thus, multicollinearity is not a problem (Chatterjee, Hadi, & Price, 2000).

References
Adsera, Alicia, Boix, Carles, & Payne, L. (2000). Are you being served? Political accountability and quality of government (Working Paper 438). Washington, DC: Inter-American Development Bank. Alvarez, Michael, & Glasgow, Garrett. (2000). Two-stage estimation of non-recursive choice models. Political Analysis, 8, 147-166. Blundell, R., & Bond, S. (1998). GMM estimation with persistent panel data: An application to production functions (Working Paper Series No. W99/4). London, UK: Institute for Fiscal Studies. Braun, M., & Tella, R. (2000). Inflation and corruption (Working paper). Boston, MA: Harvard Business School. Brunetti, Aymo, & Weder, Beatrice. (2003). A free press is bad news for corruption. Journal of Public Economics, 87, 1801-1824. Bryan, Shari, & Baer, Denise. (2005). Money in politics: A study of party financing practices in 22 countries. Washington DC: National Democratic Institute for International Affairs. Bull, Martin J., & Newell, James L. (2003). Corruption in contemporary politics. New York, NY: Palgrave Macmillan. Cain, Bruce, Ferejohn, John, & Fiorina, Morris. (1987). The personal vote: Constituency service and electoral independence. New York, NY: Cambridge University Press. Campos, Nauro, & Franceso, Giovannoni. (2007). Lobbying, Corruption and Political Influence. Public Choice, 131, 1-21. Carey, John, & Shugart, Matthew S. (1997). Presidents and assemblies: Constitutional design and electoral dynamics. New York, NY: Cambridge University Press. Chang, Eric C. C., & Golden, Miriam. (2007). Electoral systems, district magnitude and corruption. British Journal of Political Science, 37, 115-137. Chatterjee, S., Hadi, A. S., & Price, B. (2000). Regression analysis by example. New York, NY: John Wiley. Cheibub, J. (2007). Presidentialism, parliamentarism, and democracy. New York, NY: Cambridge University Press. Cox, Gary W. (2000). Legislative organization. Legislative Studies Quarterly, 25, 169-192.

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

Yadav

1055

Cox, Gary W., & McCubbins, Mathew. (2007). Legislative leviathan: Party government in the House (2nd ed.). Cambridge, UK: Cambridge University Press. Della Porta, Donatella, & Vanucci, Alberto. (1999). Corrupt exchanges: Actors, resources and mechanisms of political corruption. New York, NY: Aldine. Diermeier, Daniel, & Feddersen, Timothy. (1998). Cohesion in legislatures and the vote of confidence procedure. American Political Science Review, 92, 611-22. Djankov, Simeon, Porta, Rafael L., Lopez-de-Silanes, F., & Shleifer, A. (2010). Disclosure by politicians. American Economic Journal: Applied Economics, 2, 179-209. Dring, Herbert. (1995). Parliaments and majority rules in Western Europe. Mannheim, Germany: University of Mannheim, Mannheim Center for European Social Research. Fisman, Raymond J., & Gatti, Roberta. (2002). Decentralization and corruption: Evidence across countries. Journal of Public Economics, 83, 325-345. Freedom, House. (2007). Freedom in the World 2007: The annual survey of political rights and civil liberties. Lanham, MA: Rowman & Littlefield Publishers. Gerring, John, & Thacker, Strom C. (2008). A centripetal theory of democratic governance. New York, NY: Cambridge University Press. Gerring, John, Thacker, Strom C., & Moreno, Carola. (2009). Are parliamentary systems better? Comparative Political Studies, 42, 327-359. Greene, William. (2003). Econometric analysis. New York: Prentice Hall. Haggard, Stephan, & McCubbins, Mathew. (Eds.). (2001). Presidents, parliaments, and policy. New York, NY: Cambridge University Press. Harstad, B., & Svensson, J. (2006). Bribes, lobbying and development (CEPR Discussion Paper 5759). London, UK: Centre for Economics Policy Research. Hellman, Joel, & Kaufmann, Daniel. (2000). Seize the day, seize the state (Policy Paper 2444). Washington, DC: World Bank. Huber, John D. (1996, May). The vote of confidence in parliamentary democracies. American Political Science Review, 90. Huber, John D., & Shipan, Charles R. (2002). Deliberate discretion? The institutional foundations of bureaucratic autonomy. New York, NY: Cambridge University Press. Johnson, Diane. (2008). Continuity and change in Argentine interest group activity and lobbying practices Journal of Public Affairs, 8, 83-97. Johnson, Joel, & Jessica, Wallack. (2007). Electoral systems and the personal vote: Update of database of particularism. Retrieved from dss.ucsd.edu~jwjohnso/espv. html Johnston, Michael. (2005). Syndromes of corruption: Wealth, power and democracy. New York, NY: Cambridge University Press.

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

1056

Comparative Political Studies 45(8)

Kaufmann, Daniel, Kraay, Aart, & Mastruzzi, Massimo. (2009). Governance matters VIII: Aggregate and individual governance indicators 19962008 (Policy Research Working Paper 4978). Washington, DC: World Bank. Kaufmann, Daniel, & Vicente, Pedro. (2008). Legal corruption. Unpublished manuscript. Kunicova, Jana. (2006). Democratic institutions and corruption: incentives and constraints in politics. In Susan Rose-Ackerman (Ed.), International handbook on the economics of corruption (pp. 140-160). Northampton, MA: Edward Elgar. Kunicova, Jana, & Rose-Ackerman, Susan. (2005). Electoral rules and constitutional structures as constraints on corruption. British Journal of Political Science, 35, 573-606. Lambsdorff, Johann Graf. (1998). Transparency International 1998 Corruption Perception Index (Framework document). Berlin, Germany: Transparency International. LaPalombara, Joseph. (1964). Interest groups in Italian politics. Princeton, NJ: Princeton University Press. LaPalombara, Joseph. (1994). Structural and institutional aspects of corruption. Social Research, 6, 322-330. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1999). The quality of government. Journal of Law, Economics, and Organization, 15, 222-279. Latinnews. (2007, April). Brazil and Southern Cone. ISSN 1471-4431. Retrieved from http://www. Latinnews.com Laver, Michal J. (2002). Divided parties, divided government. In Gerhard Loewenberg, Peverill Squire, & D. Roderick Kiewiet (Eds.), Legislatures (pp. 201-223). Ann Arbor: University of Michigan Press. Leite, Carlos A., & Weidmann, Jens. (1999). Does mother nature corrupt? Natural resources, corruption, and economic growth (IMF Working Paper 85). Washington, DC: International Monetary Fund. Mansfield, E., Milner, H., & Rosendorff, P. (2000). Free to trade: Democracies, autocracies, and international trade. American Political Science Review, 94, 305-321. Martin, Lanny W., & Vanberg, Georg. (2004). Policing the bargain: Coalition government and parliamentary scrutiny. American Journal of Political Science, 48(3), 445-61. Milner, Helen. (1997). Interests, information and institutions. Princeton, NJ: Princeton University Press. Montinola, G., & Jackman, R. W. (2002). Sources of corruption: A cross-country study. British Journal of Political Science, 32, 147-170. Neto, Octavio Amorim, Cox, Gary, & McCubbins, Mathew. (2003). Agenda power in Brazils camara dos diputados, 19891998. World Politics, 55, 550-578. Open Society Institute. (2002). Monitoring the EU accession process: Corruption and anti-corruption policy in Poland. Retrieved from http://www.soros.org/resources/

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

Yadav

1057

articles_publications/publications/euaccesscorruption_20020601/1euaccesscorru ptionfullreport_20020601.pdf Persson, Torsten, & Tabellini, Guido. (2003). The economic effects of constitutions. Cambridge, MA: MIT Press. Pinto-Duschinsky, Michael. (2002). Financing politics: A global view. Journal of Democracy, 13, 69-86. Plmper, Thomas, & Troeger, Vera E. (2007). Efficient estimation of time-invariant and rarely changing variables in finite sample panel analyses with unit fixed effects. Political Analysis, 15, 124-139. Przeworski, Adam, Alvarez, Michael, Cheibub, Jos Antonio, & Limongi, Fernando. (2000). Democracy and development: Political regimes and economic well-being in the world, 19501990. New York, NY: Cambridge University Press. Rasch, Bjrn Erik. (1995). Parliamentary voting procedures. In Herbert Dring (Ed.), Parliaments and majority rule in Western Europe (pp. 488-527). New York, NY: St. Martins. Rose-Ackerman, Susan. (1999). Corruption and government: Causes, consequences, and reform. New York, NY: Cambridge University Press. Sandholtz, Wayne, & Koetzle, William. (2000). Accounting for corruption: Economic structure, democracy, and trade. International Studies Quarterly, 44, 31-50. Seldadyo, Harry, & de Haan, Jakob. (2006, April). The determinants of corruption: A literature survey and new evidence. Paper prepared for the European Public Choice Society conference, Turku, Finland. Shleifer, Andrei, & Vishny, Robert. (1993). Corruption. Quarterly Journal of Economics, 108, 599-617. Svensson, Jakob. (2005). Who must pay bribes and how much? Evidence from a cross-section of firms. Quarterly Journal of Economics, 118, 207-230. Tavits, Margit. (2007). Clarity of responsibility and corruption. American Journal of Political Science, 51, 218-229. Thacker, Strom. (2009). Democracy, economic policy and political corruption in comparative perspective. In C. Blake (Ed.), Corruption and democracy in Latin America (pp. 25-45). Pittsburgh, PA: University of Pittsburgh Press. Transparency International. (2004). Global corruption report. Retrieved from www. transparency.org/publications/gcr Transparency International. (2007). Global corruption report. Retrieved from www. transparency.org/publications/gcr Transparency International. (2009). Global corruption report. Retrieved from www. transparency.org/publications/gcr Treisman, Daniel. (2000). The causes of corruption: A cross-national study. Journal of Public Economics, 76, 399-457.

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013

1058

Comparative Political Studies 45(8)

Treisman, Daniel. (2007). 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. Tsebelis, George, & Aleman, Eduardo. (2005). Presidential conditional agenda setting in Latin America. World Politics, 57, 396-420. U.S. Agency for International Development. (2003). Funding of political parties and electoral campaigns (Reginald Austin & Maja Tjernstrom, Eds.). Stockholm, Sweden: Trydells. Vanberg, Georg. (2008). Establishing and maintaining judicial independence. In Gregory Caldeira, Dan Keleman, & Keith Whittington (Eds.), Oxford handbook of law and politics (pp. 99-118). New York, NY: Oxford University Press. Walecki, Marcin. (2003). Money and politics in Central and Eastern Europe. In Karl-Heinz Nassmacher (Ed.), Funding of political parties and election campaigns. Retrieved from http://www.idea.int/publications/funding_parties/index.cfm Wooldridge, J. (2002). Econometric analysis of cross section and panel data. Cambridge, MA: MIT Press. World Bank. (2010). World Bank Annual Report 2010. Washtington, DC: World Bank. World Bank and European Bank for Reconstruction and Development. (2002). BEEPS and WBES surveys. Retrieved from http://www.ebrd.com/pages/research/analysis/ surveys/beeps.shtml Yadav, Vineeta. (2010). Legislatures and venue choice in developing democracies: A comparative study. Unpublished manuscript, University of Notre Dame, Notre Dame, IN.

Bio
Vineeta Yadav is an assistant professor of political science at Penn State with research interests in institutions, comparative judicial politics, special interest group behavior, economic development, and the politics of Brazil, China, and India.

Downloaded from cps.sagepub.com at Universiteit Leiden \ LUMC on April 9, 2013