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Is

Corruption
Curable?
KHALID SEKK
SEKKAT
SEK KAT
Is Corruption Curable?
Khalid Sekkat

Is Corruption
Curable?
Khalid Sekkat
Centre Emile Bernheim
University of Brussels
Brussels, Belgium

ISBN 978-3-319-98517-6 ISBN 978-3-319-98518-3  (eBook)


https://doi.org/10.1007/978-3-319-98518-3

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To Houda, my wife and best friend
Contents

Part I  Corruption, Extent, Causes and Consequences

1 Definition, Amount, and Coverage 5

2 Measurement Issues 39

3 Causes 71

4 Consequences 119

Part II  Anti-corruption Strategies: The Role of the State

5 Democracy 165

6 Electoral Rules 179

7 Decentralization 189

8 Regulation 203
vii
viii    
Contents

9 Justice 211

10 Specialized Anti-corruption Agencies 231

11 Incentives and the Corruption Market 241

12 International Cooperation 265

Part III Anti-corruption Strategies:


The Role of Civil Society

13 Civil Society and the Media 283

14 Civil Society and the Specific Role of ICT 299

15 Civil Society and the Role of Education 311

Conclusion 337

Index 341
Abbreviations

ACA Anti-Corruption Agencies


ARA Autonomous Revenue Authorities
AU African Union
BEC British Election Studies
BEEPS Business Environment and Enterprise Performance Survey
BHPS British Household Panel Study
BPI Bribe Payers Index
CCI Control of Corruption Index
CIS Commonwealth of Independent States
CPI Corruption Perceptions Index
CPIB Corrupt Practices Investigation Bureau
CPS Current Population Survey
CRF Clean Report of Finding
CSO Civil Society Organization
DoJ Department of Justice
DPA Deferred Prosecution Agreement
DR Discrepancy Report
EBRD European Bank for Reconstruction and Development
EDI E-government Development Index
EIU Economist Intelligence Unit
ESS European Social Survey

ix
x    
Abbreviations

EU European Union
FCPA Foreign Corrupt Practices Act
FERA Federal Emergency Relief Administration
FH Freedom House
GRC Global Competitiveness Report
GSS General Social Surveys
GVS General Value Survey
HF Heritage Foundation
IACA International Anti-Corruption Academy
IACAC Inter-American Convention Against Corruption
ICAC Independent Commission Against Corruption
ICRG International Country Risk Guide
ICT Information and Communication Technology
ICVS International Crime Victimization Surveys
IMF International Monetary Fund
IOC International Olympic Committee
KICAC Korea Independent Commission Against Corruption
NES National Election Studies
NFE Non-Formal Education
NLSY National Longitudinal Survey of Youth
NPA Non-Prosecution Agreement
OAS Organization of American States
OECD Organization of Economic Cooperation and Development
OPEN Online Procedures Enhancement
PERC Political and Economic Risk Consultancy
PETS Public Expenditure Tracking Surveys
PSI Pre-Shipment Inspection
QSDS Quantitative Service Delivery Surveys
RTIA Right to Information Act
SEC Securities and Exchange Commission
UNCAC United Nations Convention Against Corruption
UNCTAD United Nations Conference on Trade and Development
WB World Bank
WCR World Competitiveness Report
WEF World Economic Forum
WES World Enterprise Surveys
WGI World Governance Indicators
WJP World Justice Project
WTO World Trade Organization
WVS World Values Survey
List of Tables

Chapter 2
Table 1 Comparison of country rankings based on perception
indicators in 2010 49
Table 2 Comparison of country rankings: Experience versus
perception 51
Table 3 Change in country ranking over time 61

xi
Introduction

Notwithstanding some dissenting voices, which will be discussed later


in the book, corruption is now widely recognized as a major “disease”
which threatens not only economic development but also the very foun-
dations of societies. Numerous publications have examined the causes
and consequences of corruption but almost none has offered a deep
analysis of possible cures. This book aims to fill that gap. It discusses the
solutions that have been adopted in different countries and at the inter-
national level to curb corruption. The objective is to explore possible
effective means to reduce, as much as possible, the prevalence of cor-
ruption. In doing so, our hope is not to suggest a universally effective
way to eradicate corruption. After all, the problem can be traced back to
before 300 BC and affects almost all human activities. Rather, our pur-
pose is more modest. By analyzing the different solutions that have been
adopted around the world and the reasons for their success or failure,
we seek to provide national and international policymakers with guid-
ance on possible effective anti-corruption strategies. Such strategies can
consist in adopting existing successful solutions, correcting unsuccessful
ones, or developing other solutions which take into account the reasons
why previous attempts failed.

xiii
xiv    
Introduction

The book is written with the vision that the different components of
society are interrelated and that the well-functioning of each one is nec-
essary to the well-functioning of the group as a whole. This is referred to
as the “O-ring” theory of economic development, after the explosion of
the Space Shuttle Challenger, which was caused by the failure of a small
and relatively cheap component called an O-ring. This example high-
lights the complementarity between the components of a system and
the importance of each of them (even the smallest or cheapest) in the
sound functioning of the whole structure.
To better illustrate this vision, let us consider the following observa-
tions. Autocratic regimes are associated with a high prevalence of cor-
ruption while democratic regimes are much less affected. However,
democracy can also foster corruption because, for instance, election
campaigns require funding, and more competitive elections may make
political parties and candidates vulnerable to pressure from donors. For
this reason, many countries have adopted laws to control campaign
financing. The extent to which these laws are effective in curbing polit-
ical corruption depends on the quality of the judicial system. If the
rules are violated, opponents can call for justice. If the justice system
is corrupt or under political influence, the appeal will not be effective.
In such cases, opponents can alert the media with the objective of mak-
ing citizens protest and ensuring that the law is upheld. But alerting
the media will deliver results only if the media are not also corrupt or
under influence. It is also important that citizens are educated enough
to access, process, and use information in an efficient way in order to
achieve the target of reducing corruption, which illustrates the impor-
tance of education in the field of anti-corruption. While this simple
example is sufficient to illustrate the complementarity of different fac-
tors in the fight against corruption, the book offers a deeper discussion
of other mechanisms which link the effectiveness of various strategies.
The book is divided into three main parts. The first is devoted to the
extent, causes, consequences, and persistence of corruption. It shows that
no activity in society is immune to corruption, that the motives of corrup-
tion are complex and diverse, that the phenomenon has serious economic,
social, and political consequences, and that corruption is persistent. Such
persistence reveals the failure of anti-corruption strategies. It also hampers
Introduction    
xv

their success. The following two parts of the book focus on the cure for cor-
ruption. Part II examines the institutional dimension, including the role of
democracy, political parties, justice, decentralization, regulation, and inter-
national cooperation. The third and final part discusses the role of civil soci-
ety, including citizens, the media, NGOs, social networks, and education.
These institutional and societal dimensions together constitute the main
pillars of an effective anti-corruption strategy. It is shown that addressing
the problem of corruption through one dimension only is ineffective.
Each of the three parts is composed of a number of chapters. Each
chapter starts with a conceptual discussion of the issue at hand, explain-
ing the logic and reasons underlying the issue in an informal way. While
the explanation draws on formal economic studies (including theo-
retical and empirical models), it is non-technical in order to allow the
reader to understand the problem without specific knowledge of mathe-
matics or econometrics. The conceptual part is followed by an empirical
discussion providing real-life illustrations as well as the results of more
formal and comprehensive analyzes. The empirical discussion is also
based on rigorous academic studies but presented in an informal style
for the same reason as above.
This book is intended for practitioners in national and international
organizations, NGOs, students, and academics. In recent decades, con-
cerns about corruption have increased so dramatically that nowadays
almost every international organization has an anti-corruption depart-
ment or program. A non-exhaustive list would include:

• The United Nations (United Nations Convention Against Corruption,


UNCAC).
• The Council of Europe (Group of States against Corruption, GRECO).
• The World Bank (Global Governance Practice).
• The OECD (OECD Convention Against Corruption and OECD
Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions).
• The European Union (Convention on the Protection of the European
Communities’ Financial Interests).
• The Organization of American States (Inter-American Convention
Against Corruption).
xvi    
Introduction

In addition to the international organizations, a number of NGOs


are working on corruption issues. Examples include:

• Transparency International based in Geneva.


• Freedom House based in Washington.
• World Economic Forum based in Geneva.

At the national level, a large number of countries have set up inde-


pendent Anti-Corruption Agencies. A non-exhaustive list includes
Albania, Argentina, Austria, Australia, Brunei, Brazil, Bulgaria, China,
Colombia, Ecuador, El Salvador, Hong Kong, India, Indonesia, Korea,
Malaysia, Mexico, New Zealand, Paraguay, Peru, Philippines, Sierra
Leone, Singapore, South Africa, Thailand, and the USA.
Finally, and probably more significantly, an International Anti-
Corruption Academy (IACA) was recently established. Based in
Laxenburg, Austria, the IACA is dedicated to overcoming current short-
comings in knowledge and practice in the field of anti-corruption and
seeks to empower professionals for the challenges of tomorrow.
Students are important future players in society. Besides improving
their exam marks, they can benefit from this book by gaining worth-
while information for their future jobs. The book will also be valuable
to researchers working on corruption, by suggesting issues that remain
underexamined but deserve further investigation. Last but not least, the
book offers useful information and references to any teachers of devel-
opment economics, institutional economics, or macroeconomics.
Part I
Corruption, Extent, Causes
and Consequences

Corruption is an old, widespread, and multifaceted phenomenon. In an


early survey on corruption, Bardhan (1997)1 cites a treatise on public
administration dating back to the fourth century BC:
“Just as it is impossible not to taste the honey (or the poison) that
finds itself at the tip of the tongue, so it is impossible for a government
servant not to eat up, at least, a bit of the king’s revenue. Just as fish
moving under water cannot possibly be found out either as drinking or
not drinking water, so government servants employed in the govern-
ment work cannot be found out (while) taking money (for themselves)”
(Bardhan 1997, p. 1320).
Mishra (2006) notes that references to corruption can be found in
even more ancient sources, such as the Code of Hammurabi, King of
Babylon (twenty-second century BC), or the Eddict of Harmhab, King
of Egypt (fourteenth century BC). Maennig (2005) reports cases of cor-
ruption dating back to 388 BC. One case is attributed to the athlete
Eupolos of Thessalia, who successfully bribed three of his competitors in
the first combat tournament at the Olympic Games. Another early case

1Other very interesting surveys are Aidt (2003) and Jain (2001).
2    
Part I: Corruption, Extent, Causes and Consequences

of corruption also concerns sports. In twelfth-century BC, Damonikos


of Elis, father of the Olympic wrestler Polyktor, attempted to bribe the
father of the opponent to persuade his son to concede victory in the
Olympic wrestling competition to Polyktor.
Looking closer to our own era, Mishra (2006) observes that cor-
ruption emerged in China under the Ming dynasty in the fourteenth
century and continued spreading during the Qing dynasty through
the nineteenth century. There were many attempts to curb corrup-
tion, including large-scale salary reforms, but the problem persisted.
Similarly, corrupt practices were widespread during the seventeenth cen-
tury in Florence despite the presence of fairly repressive anti-corruption
laws.
Corruption is not only old but highly widespread. Almost no coun-
try or human activity around the world escapes the problem. In devel-
oping countries, it is almost impossible to find someone who has
never been directly or indirectly (through parents or other relatives)
asked for some kind of “inappropriate” payment to get something
done. Although in developed countries this kind of corruption is very
rare, it is equally difficult to find any country where no politician or
high-ranking official has ever been convicted of taking some money
from a firm or other “benefactor”. Looking at the recent release of the
three most commonly used indicators of the prevalence of corruption,
namely Transparency International’s Corruption Perceptions Index, the
indicators provided by the International Country Risk Guide, and the
Worldwide Governance Indicators, no country, developed or devel-
oping, attains the best possible score. Moreover, contrary to common
belief, corruption is not limited to bureaucrats and politicians. Various
studies document the prevalence of corruption in health, educa-
tion, justice, law enforcement, water, sports, and even unions, and the
media. Corruption is not rare even during humanitarian emergencies.
According to Transparency International, corruption hampered relief
efforts after the 2004 Southeast Asian tsunami.
The multifaceted aspects of corruption include its form, amount, and
organization. This has important implications for understanding and fight-
ing the phenomenon. Forms of corruption include bribery, nepotism, theft
of state assets, and diversion of state revenues. Amounts range from small
Part I: Corruption, Extent, Causes and Consequences  
   3

payments to low-ranking officials in exchange for services that citizens


are entitled to in any case (i.e., “petty” corruption) to large payments to
high-ranking officials and ministers in exchange for influencing or chang-
ing regulations and other state rules (i.e., “grand” corruption). While the
former is the most visible and exasperating to ordinary citizens, the latter is
less visible but has potentially higher adverse economic impacts. From the
organization angle, corruption can be isolated or collusive, centralized or
decentralized, and may or may not involve intermediaries.
The above features show that winning the battle against corrup-
tion, while possible, is not easy. Mobilizing people to fight corruption
is further complicated by the lack of consensus that such practices
always have a negative impact. Some writers have suggested that cor-
ruption can “grease the wheels” of business, and thus, its economic
impact might be positive. Corruption can be beneficial in a second-best
world because of the distortions caused by ill-functioning institutions.
In 1965, Leys (1965) titled his pioneering paper “What is the Problem
about Corruption?” Bardhan (1997), meanwhile, recalls episodes in the
history of Europe and the USA when corruption fostered economic
development by allowing entrepreneurs to grow. Furthermore, Beck
and Maher (1986) and Lien (1986) argue that corruption may raise
efficiency. However, other researchers have argued that even if corrup-
tion can induce ex post positive effects, the perspective of getting money
may cause bureaucrats to create ex ante conditions that support demand
for corruption through new regulations, complexity, and unjustified
delays. Moreover, the “grease the wheels” effect may become ineffective
or too expensive when the administration is made up of a succession of
decision centers. In this case, civil servants at each stage may have some
form of veto power or ability to slow down the process (Shleifer and
Vishny 1993). Bardhan (1997) reports a discussion with an Indian high
official who points out that while a civil servant might not be able to
move a file faster, he or she could always stop it.
Against this background, the objective of Part I of this book is to dis-
cuss in depth the issues presented above in order to enable us to tackle
efficiently and clearly the analysis in the rest of the book. Chapter 1
discusses the definition, amount, and overage of corruption around the
4    
Part I: Corruption, Extent, Causes and Consequences

world. Chapter 2 focuses on the measurement of corruption. Chapter 3


examines the causes, while Chapter 4 deals with the consequences.

References
Aidt, T. S. (2003). Economic Analysis of Corruption: A Survey. The Economic
Journal, 113(491), F632–F652.
Bardhan, P. (1997). Corruption and Development: A Review of Issues. Journal
of Economic Literature, 35(3), 1320–1346.
Beck, P. J., and Maher, M. W. (1986). A Comparison of Bribery and Bidding
in Thin Markets. Economics Letters, 20(1), 1–5.
Jain, A. K. (2001). Corruption: A Review. Journal of Economic Surveys, 15(1),
71–121.
Leys, C. (1965). What is the Problem About Corruption? The Journal of
Modern African Studies, 3(2), 215–230.
Lien, D. H. D. (1986). A Note on Competitive Bribery Games. Economics
Letters, 22(4), 337–341.
Maennig, W. (2005). Corruption in International Sports and Sport
Management: Forms, Tendencies, Extent and Countermeasures. European
Sport Management Quartely, 5(2), 187–225.
Mishra, A. (2006). Persistence of Corruption: Some Theoretical Perspectives.
World Development, 34(2), 349–358.
Shleifer, A., and Vishny, R. W. (1993). Corruption. Quarterly Journal of
Economics, 108(3), 599–617.
1
Definition, Amount, and Coverage

This chapter introduces the issue of corruption and sets the stage for
the rest of the book. It starts by discussing the various definitions of
corruption in order to highlight the complexity of the phenomenon.
It then discusses the amount of corruption at the macroeconomic level
and in specific activities. The subsequent section of the chapter pre-
sents the extent of the phenomenon in selected sectors. In addition
to examining certain key activities (Medical and Water sectors) which
have serious implications for the poor, the focus is on activities (Politics,
Bureaucracy, Justice, Media, and Education) covered in Parts 2 and 3 of
the book, which are concerned with effective means to curb corruption.

1 Definition
The literature contains many definitions of corruption. For instance,
Rose-Ackerman (2002) sees corruption as “an illegal payment to a
public agent to obtain a benefit that may or may not be deserved in
the absence of payoffs”. Shleifer and Vishny (1993) refer to “the sale
by government officials of government property for personal gain”.

© The Author(s) 2018 5


K. Sekkat, Is Corruption Curable?, https://doi.org/10.1007/978-3-319-98518-3_1
6    
K. Sekkat

For Treisman (2000), it is “the misuse of public office for private gains”.
For Transparency International (TI), an NGO which attempts to expose
corruption, it is “the abuse of public office for private gain”. For the
World Bank (WB), corruption is “the abuse of public office for private
gain”. The Organization for Economic Co-operation and Development
(OECD) proposes that it is “the promise of giving of any undue pay-
ment or other advantages whether directly or through intermediaries
to, or for the benefit of, a public official to influence the official to act
or refrain from acting in the performance of his or her official duties
in order to obtain or retain business”. Finally, the European Bank for
Reconstruction and Development (EBRD) states that “corrupt practices
mean the bribery of public officials or other persons to gain improper
commercial advantage”.
However, none of these definitions applies to all forms, types, and
degrees of corruption, or covers all acts which can be considered as cor-
ruption. In particular, most definitions relate corruption to the behavior
of a public official, point to an illegal act, emphasize the payment of
bribes, and assume some direct or indirect benefits to one or both par-
ties. These are limitations that make it impossible to capture the whole
scope of corruption. To be fair, some organizations have extended their
definition to encompass more aspects of corruption. For instance, the
United Nations Office on Drugs and Crime emphasizes that corrup-
tion can occur in both the public and private domains, while the WB
has examined several cases of corruption among private corporations
(Hodgson and Jiang 2007). In order to highlight the limitations of the
common definitions of corruption, we will examine below some exam-
ples of serious cases of corruption which are not covered by the above
definitions.

1.1 Public Officials

Seeing corruption as limited to public officials may lead the wrong strat-
egy to be adopted. Nobel Prize Gary Becker is quoted in Business Week
as declaring: “if we abolish the state, we abolish corruption” (Hodgson
and Jiang 2007, p. 1047). A less-extreme recommendation is to reduce
1  Definition, Amount, and Coverage    
7

the size of the state in order to limit corruption. However, this is not
necessarily an effective solution. For instance, in many former com-
munist countries where the economic power of the state was reduced
drastically, corruption did not decrease but increased dramatically after
1991. Moreover, some of the least-corrupt countries, such as Denmark,
Finland, the Netherlands, Norway, and Sweden, have large public sec-
tors as measured by the share of public spending in GDP. Finally, cor-
ruption is not confined to the public sector. The following provides
examples of major corruption in the non-public sector.
Scandals concerning large US corporations such as Enron, Xerox,
and WorldCom illustrate cases of abuse of private office for private
gains. Elias (2005) reports that in 2001 US authorities reported 260
fraud investigations. The majority of these investigations involved
accounting practices known as “earnings management”, which paint
a financial picture of the company that does not match reality. These
practices resulted in the bankruptcies of Enron and WorldCom and
were clearly detrimental to all stakeholders. Earnings management prac-
tices are committed by the most senior financial executives and, often,
external auditing firms. Arthur Andersen, an accounting firm with a
long-standing reputation for high ethical standards, was accused of
cooking the books for Enron (Swanson and Frederick 2003).
Corruption has also been found in sports, including the bribing of
players, competitors, and organizers. Maennig (2005) reports several
examples, such as the awarding of the 2002 Winter Olympics to Salt
Lake City (USA), the gold medal decision in the 2002 Olympics figure
skating competition in favor of the Russian skating pair (and against the
Canadians), and the verdict in the finals of the Olympic boxing com-
petition in Seoul in 1988. In Germany, a referee fixed soccer matches
in the Bundesliga Second Division, for which he received money and
goods to a value of at least €50,000 from three Croatian gamblers. In
2012, journalists disguised as London businessmen pretended to be
willing to buy votes for London’s 2012 Olympic bid. An International
Olympic Committee (IOC) member was caught on a hidden camera
agreeing to the deal. These examples illustrate the scale of corruption in
the non-public sector.
8    
K. Sekkat

Another illustration concerns corruption in unions. According to


Thieblot (2006), union corruption spans a broad spectrum, including
embezzlement, bribes, and misuse of pension plan schemes. Holders
of senior union positions might not only benefit from inflated bonuses
and compensation, but also collect bribes in exchange for labor peace
or job access, and engage in other corrupt practices. At one extreme, a
corrupt union officer might merely turn a blind eye to unsafe working
conditions in exchange for bribes. At the other extreme, a union leader
might engage in criminal collaboration, as in the well-known case of
Jimmy Hoffa in the USA (Coombs and Cebula 2011). However, there
is little academic literature on union corruption except in the USA,
and, to be fair, apart from some notorious older cases, there is no clear
consensus about the pervasiveness of corruption in unions (Horowitz
2004). Freeman and Medoff (1984), examining criminal activity in
labor unions between 1969 and 1978, suggest that union corruption is
small scale in nature and that the incidence is low. In contrast, Thieblot
(2006, p. 531) documents 1238 instances of corruption in American
labor unions, distributed among 137 different organizations, between
the middle of 1998 and the end of 2005.

1.2 Illegality

Narrowing the focus of corruption to illegal activities might bias


the estimate of its impact and overlook some forms that are as harm-
ful to society as the illegal ones. First, in many developing countries,
gift-exchange is a social norm in business transactions (Bardhan 1997,
p. 1130). A bribe is distinct from a gift in the sense that the former
implies reciprocity while the latter does not, although the distinction
is sometimes difficult to make. Ignoring this results in considering one
country to be more corrupt than another purely because of its social
norms. Second, the rules which define a corrupt action differ across
countries (Banerjee et al. 2012). The same act may be classified as cor-
ruption in one setting, but not in another. For example, in the USA and
India, the law allows citizens to obtain passports faster by paying a fee.
This is not considered as corruption in these countries but would be in
1  Definition, Amount, and Coverage    
9

others where no such provision exists in the law. Third and more impor-
tantly, the legality criterion disregards practices such as state capture
that have potentially more severe economic consequences than “ille-
gal corruption”. State capture occurs when specific public authorities
and business interests become so interdependent that economic deci-
sion processes are distorted. The most common example is one where
a politician has close “connections” to the private sector, and both sides
exploit the ties for mutual benefit. The parties exchange favors over time
through the allocation of specific legislation or procurement contracts
and political campaign funding, making it very difficult to prove that
corruption has occurred (Kaufmann and Vicente 2011).
Capture goes back to Montesquieu and Marx, who argued that gov-
ernments may favor special interest groups. Taking a more disaggregated
view of government which distinguishes regulatory agencies from politi-
cal executives and recognizes the multi-principal nature of governments,
the authors showed the distorting role that could be played by the var-
ious intermediaries needed to implement industrial policies. Campos
and Giovannoni (2007) show that capture and corruption are substi-
tutes and that capture is a much more effective instrument for political
influence than corruption, even in poorer, less-developed countries.
Hellman et al. (2003) present the results of a survey on how firms
in transition economies are able to shape the rules of the game to their
own advantage, at considerable social cost. Their paper represents the
first major attempt to provide sound empirical measures of various
forms of grand corruption, such as state capture as well as corruption in
public procurement, and administrative corruption (petty forms of cor-
ruption). The results indicate that state capture generates considerable
performance gains for the firm, while petty corruption is associated with
slower firm-level growth rates. This suggests that while the rents gener-
ated by state capture are shared by firms and the state, the rents from
petty corruption are largely retained by public officials. Hellman and
Schankerman (2000) study the relationship between state capture and
the EBRD index of economic reform as well as the relationship between
state capture and the quality of governance. They find that state cap-
ture has a powerfully negative impact on the quality of governance in
transition economies. High-capture countries exhibit heavier taxes and
10    
K. Sekkat

regulation, greater corruption, poorer macroeconomic management and


less-effective law and order. At the same time, state capture is strongly
negatively associated with progress on economic reform.

1.3 Payments and Benefits

Considering corrupt acts as involving only money or directly benefiting


one or both parties also leaves aside important subsets of corrupt acts
(Tanzi 1998). The abuse of power can involve no direct payment but
only highly indirect benefits to one or both parties. This is the case, for
instance, where a wealthy father makes a donation to a university with
the “hope” of having his child enrolled in that university in the future.
The dean does not put the money in his/her own pocket, and the father
does not get any direct benefit from the donation. In the same vein,
in many countries, huge amounts of private money finance the activ-
ities of political parties, but neither the president of the party nor the
donor receives any direct financial gains. For instance, former German
Chancellor Helmut Kohl was accused of accepting secret donations for
his party. Although admitting to “some mistakes”, Kohl claimed that
what he did was in the interest of the party. The investigation was com-
pleted in July 2002, and no evidence of Kohl’s personal enrichment was
found. There was certainly a breach of the law, and Kohl was ordered to
pay a fine of DM 300,000. His party, the CDU, was fined €21 million
and suffered electoral losses (Rose-Ackerman 2006).
Inside private corporations, one or several subgroups of agents can
develop inside the firm and follow objectives that are different from the
global strategy of the organization. These groups may bias the infor-
mation that is communicated to other subgroups, managers, or stock-
holders. A subgroup’s strategy may, for instance, tend to favor internal
supply, even if it is less competitive than the market. This leads to the
maintenance of underperforming projects or divisions. This strategy can
sometimes be justified by economic considerations: Because of the pres-
ence of fixed sunk costs, the activity of a division can be maintained
as long as the price on the market is higher than the variable average
cost. However, such a strategy may also result from coalitions inside
1  Definition, Amount, and Coverage    
11

the company. The head of a division is always reluctant to lose her/his


division (or her/his job) even if it performs poorly with respect to the
market. He/she will try to find allies among peers to maintain the sta-
tus quo as long as possible: “I buy from your division; you support my
project proposal or job promotion and so forth” (Williamson 1975, p.
120).
Finally, there are important cases where individuals act corruptly
for moral reasons. This is sometimes called “noble cause corruption”.
A good example was when Oskar Schindler bribed Nazi officials to
prevent over a thousand Jews from being sent to concentration camps
(Hodgson and Jiang 2007).

2 Amount
The amount of corruption is very difficult to assess. For a long time,
due to a lack of systematic investigations and data collection, the mag-
nitude of corruption had to be assessed using anecdotal or case-study
evidence. Since the 1980s, a number of public national and interna-
tional institutions as well as NGOs have devoted remarkable efforts to
helping document the scale of corruption. This section focuses on mon-
etary considerations. Other aspects are discussed in subsequent chap-
ters. Before turning to more rigorous estimates, here are some examples
which illustrate the magnitude of the problem.
Let us start with some well-publicized cases of corruption. A con-
servative estimate suggests that the former President of Zaire, Mobutu
Sese Seko, looted his country’s treasury of some $5 billion (Svensson
2005), an amount that was equal to the country’s entire external debt
at the time he was thrown out of power in 1997. The funds allegedly
embezzled by former Indonesian president Mohamed Suharto and the
former president of the Philippines Ferdinand Marcos are estimated to
be two and seven times higher, respectively, than those misappropri-
ated by Mobutu (Transparency International 2004). Another example
comes from Pakistan, where the gold trade was formerly unregulated
and smuggling was common. Shortly after Benazir Bhutto returned
as prime minister in 1993, a Pakistani gold trader in Dubai proposed a
12    
K. Sekkat

deal: In return for the exclusive right to import gold, he would help the
government regularize trade and make some further private payments.
In 1994, a payment of US$10 million to Ms. Bhutto’s husband was
arranged. In November 1994, Pakistan’s Commerce Ministry wrote to
the gold trader, informing him that he had been granted a license to
be the country’s sole authorized gold importer (Rose-Ackerman 2006).
In the early 1990s, the Goldenberg firm received as much as $1 billion
from the Kenyan government as part of an export compensation scheme
for fictitious exports of commodities. In Angola, a country where three
quarters of the population live below the absolute poverty line ($1 a
day) and where one in three children dies before the age of five, nearly
$1 billion of oil revenues ($77 per capita) disappeared from the state
coffers in 2001 alone, or about three times the value of the humanitar-
ian aid received by Angola in 2001 (Svensson 2005).
We turn now to less publicized but highly significant situations. In
South India, an irrigation engineer may pay bribes of up to 14 times his
annual salary in order to obtain two-year tenure at a particular location
(Bardhan 1997). This illustrates the size of bribes the engineer is expect-
ing from this position. In Cambodia, health practitioners interviewed
for the Global Corruption Report 2006 estimated that, even before the
health budget left central government, more than 5% was lost to cor-
ruption (Transparency International 2006). Bandiera et al. (2009) focus
on Italy, which is often seen as one of the most corrupt countries in
Europe. Examining the cost of public procurement, they find that dif-
ferent branches of government pay very different prices for exactly the
same product. The difference can exceed 50%. Overall, they estimate
that the government could save up to 2% of GDP if most purchase
officers paid the same price as the most economical officers. Le Monde
of March 17, 1995, reported that the bribes paid abroad by French
companies in 1994 amounted to around FF10 billion. According to
World Business of March 4, 1996, bribes paid abroad by German com-
panies exceeded US$3 billion a year. Moreover, it seems that around
15% of the total money spent on weapons acquisitions goes toward
“commissions” for different parties (Tanzi 1998). Svensson (2005),
based on survey of Ugandan firms, reports that 80% of these firms
said they needed to pay bribes. The 20% of firms reporting that they
1  Definition, Amount, and Coverage    
13

had not paid bribes also minimize their contact with the public sector,
meaning that avoiding graft comes at a cost.
One field where the issue of corruption is especially critical is pub-
lic procurement and service delivery programs. Reinikka and Svensson
(2004), focusing on a Ugandan public education program that offered
each student a grant to cover primary school expenditures, find that
over the period 1991–1995, schools received only 13% of central gov-
ernment spending on the program. Most schools received nothing. The
bulk of the grants were captured by local government officials and poli-
ticians. Olken (2005, 2006), using a similar methodology, finds that in
a large anti-poverty program in Indonesia, 29% of funds allocated to a
road-building project and 18% of rice subsidies were stolen. Di Tella
and Schargrodsky (2003) compare prices paid for basic homogeneous
inputs at public hospitals in the city of Buenos Aires. They show that
prices paid fell by 15% during the first nine months of a government
attack on corruption in 1996–1997. These figures are further supported
when confronted with the scale of corruption in public procurement
around the world. According to Kaufmann (2005), a conservative
approach estimates annual worldwide bribery related to public procure-
ment at about US$1000 billion, or equal to Mexico’s GDP (in 2000,
PPP current). These figures include bribes between firms and public
officials or politicians in the industrialized world, between multinational
corporations from industrial countries and the public sector in emerg-
ing economies, and bribery within emerging economies. Finally, the
estimate does not take account of the significant losses to a country’s
investment, private sector development, and economic growth.

3 Coverage
In terms of coverage, we will consider selected fields where corruption
is present. It is not possible to present an exhaustive overview of all the
fields affected by corruption. In addition to examining certain key activ-
ities (Medical and Water sectors) which have serious implications for
the poor, we focus on activities (Politics, Bureaucracy, Justice, Media,
14    
K. Sekkat

and Education) covered in Parts 2 and 3 and relating to the core con-
cern of this book: Are there effective means to curb corruption?

4 Politics
As discussed above, the distinction between bureaucratic corruption and
political corruption is important, especially in that they affect developed
and developing countries differently. In developing countries, the scope
of political competition and checks and balances is very limited, which
leaves room for a lot of political corruption. These countries also have a
high degree of bureaucratic corruption. In developed countries, democ-
racy is the rule and there is an active political opposition. Politicians
face competition almost all the time, while bureaucrats in charge of spe-
cialized agencies or administrative departments face much less compe-
tition. Paradoxically, in these countries, bureaucratic corruption is very
limited while political corruption is widespread (Bardhan 2006).
In discussing political corruption, the literature distinguishes, in gen-
eral, corruption while in office and corruption while running for office
(i.e., corruption related to elections). For the moment, we will disre-
gard situations where a politician is running for a first or an additional
office. Political corruption while in office is not very different from
other types of corruption. It is the result of rent-seeking, the desire to
consolidate power, and so on. There are many examples besides the
well-publicized cases discussed above (Mobutu Sese Seko, Mohamed
Suharto, Ferdinand Marcos, and Benazir Bhutto). For instance, in
Peru, Vladimiro Montesinos, President Alberto Fujimori’s spy chief,
repeatedly bribed congressmen to switch to Fujimori‘s party to ensure
its majority in Congress. In addition, large bribes enabled Montesinos
to control most of the media and influence the judiciary (Hunt 2005).
Ironically, Fujimori is recognized for bringing down petty corruption.
His administration reduced the role of government in the economy not
only on efficiency grounds but also on the argument that reducing the
role of government would curb opportunities for corruption. In Turkey,
the effect of the earthquake which resulted in thousands of deaths in
2004 would have been much less severe, according to the government,
1  Definition, Amount, and Coverage    
15

if contractors had not been able to pay bribes to build homes with sub-
standard materials (Kinzer 1999). Lambert-Mogiliansky et al. (2007)
illustrate political corruption based on bankruptcy proceedings follow-
ing the enactment of Russia’s 1998 bankruptcy law. They showed that
firms located in a region with a politically powerful governor were sig-
nificantly less likely to be liquidated under the new law.
Political corruption while running for office aims to help a candidate
or party to win elections, which are among the most important features
of democracy. Parties engaging in elections incur substantial expenses in
campaigns as they seek to present their programs and mobilize voters.
A part of such expenses is in general covered by the state in accordance
with specific rules. However, public funds are rarely sufficient, and par-
ties frequently have recourse to private contributions, the bulk of which
comes from business. While regulations exist in many countries for such
contributions, numerous infringements taking the form of corruption
have been reported. During the high-profile corruption trial involving
Elf, an oil company accused of misappropriating hundreds of millions
of dollars, former Elf executive Alfred Sirven told a court in Paris that
much of the $50 million he withdrew in cash between 1990 and 1996
was used to fund French political parties and foreign leaders (BBC).1
Lambert and Kosenok (2006) cite the testimony of J. C. Mery, a Paris
City Hall official, who admitted that for ten years (1985–1994) he
organized and arbitrated collusion in the allocation of most construc-
tion and maintenance contracts for the City Hall. In exchange, firms
paid bribes that were used to finance political parties. In Germany, the
CDU party and former Chancellor Helmut Kohl were fined for receiv-
ing illegal campaign funding. Among Nordic countries, which con-
sistently rank among the least corrupt in international comparisons,
Swedish and Norwegian managers of state-owned companies have been
found to be involved in bribe-taking.
The issue of campaign financing has spawned a voluminous litera-
ture. One interesting question is why business contributes to political

1BBC News (2003): Elf Funds “Went to French Parties” (http://news.bbc.co.uk/2/hi/


Europe/2926335.stm). Accessed 15 June 2017.
16    
K. Sekkat

parties. According to McMenamin (2012), motivations differ across


countries and depend, among other things, on differences in political
economies and party systems. He groups different motivations into two
broad categories: pragmatic and ideological. The pragmatic motivation
seeks private gains from the political system while the ideological moti-
vation expresses a preference for government based on a particular set
of values and assumptions. A comparison of three countries which are
similar in terms of turnover and under transparent and permissive reg-
ulation of finance (Australia, Canada, and Germany) shows interesting
contrasts. In Canada, until the ban on corporate donations in 2004,
money tended to speak pragmatically. A large number of firms expected
some benefits in exchange for a donation to a party. In Germany,
money tends to speak ideologically. A small number of companies
contribute to a given party’s campaign as an expression of a political
preference. In Australia, pragmatism dominates, but there is also an ide-
ological preference for the right. This mix of motivations is combined
with a high contribution rate. According to McMenamin (2012), these
patterns are associated with fundamental differences in political econ-
omies and party systems. Pragmatic Canada and Australia are liberal
market economies, while Germany is a coordinated market economy.
Canada’s two traditional principal parties were almost ideologically
indistinguishable, while Australia’s parties compete on a left–right basis.

4.1 Bureaucracy

Bureaucratic corruption refers, in general, to a situation where a gov-


ernment official (“the bureaucrat”) exploits his/her authority over cer-
tain tasks to get some type of benefit. This kind of corruption is almost
unknown in developed countries while it is an everyday problem in
developing ones. Economists consider that excessive government inter-
ventions and regulations are major determinants of such corruption.
Such interventions and regulations give the bureaucrat a non-negligi-
ble degree of discretion over the execution of his/her tasks. Typical sit-
uations of bureaucratic corruption concern a firm having to pay import
duties, clearance of regulatory or licensing requirements, tax on returns,
1  Definition, Amount, and Coverage    
17

registration of new firms, compliance with workers’ safety, and so forth.


They also include citizens’ applications for government loans, driving
licenses, passports, drinking water, and more.
The degree of discretion a bureaucrat enjoys over the execution of
his/her tasks comes from the complexity of regulations and, sometimes,
the strangeness of legislation, which can make it almost impossible for
ordinary people to understand and comply with all requirements. The
Council of Europe (2009) reports examples of fire inspection regula-
tions, standards, and rules which have been in place in Ukraine since
Soviet times. In interviews, entrepreneurs mentioned that: “When vis-
iting, the fire safety inspector demands installation of 20,000 UAH fire
alarm systems, then control panel, then he requires connection to the
control panel and so on and so forth. After a series of negotiations, we
come to the conclusion that in fact, nobody needs this; instead what
they need is a certain amount split on a quarterly basis or paid regularly
on a monthly basis, which turns out to be far less expensive than follow-
ing all fire inspection standards”. The entrepreneurs felt that the gov-
ernment officials intentionally used such complicated language in their
interactions with business in order to suggest that it was impossible to
work without violating the rules (Bose 2010).
The problem of bureaucratic corruption is further magnified when
citizens engaging in a project must obtain the approval of each one of
a set of bureaucrats, often in a prescribed order. Each bureaucrat may
demand a bribe as a condition of approval. One high official in New
Delhi is reported to have told a friend: “If you want me to move a file
faster, I am not sure if I can help you; but if you want me to stop a
file I can do it immediately” (Bardhan 1997, p. 1324). This ability to
“stop a file” at multiple points may end up deterring profitable pro-
jects. Although each of the bribes may be small, the total amount of the
bribes may turn out to be excessive.
Moreover, officials have, in general, early access to important infor-
mation on all types of government programs that are valuable for out-
siders. Thus, private individuals and firms may pay to obtain such
information or to obtain it sooner than their competitors. This is a fre-
quent issue in tenders such as those used in public procurement or pri-
vatizations. For instance, privatizations in Argentina allegedly favored
18    
K. Sekkat

those with inside information and connections, while those in Thailand


supposedly involved kickbacks (Rose-Ackerman 1997).
Finally, citizens must often provide various kinds of information
and documentation to prove that they deserve to receive certain pub-
licly funded services, such as medical assistance or academic merit
scholarships. With a well-designed and efficient bureaucratic process,
such requirements can be relatively easily managed by citizens. With
an ill-designed and inefficient bureaucratic process, it becomes very
difficult to comply with such requirements. In such a case, corrup-
tion might be the only way for citizens to get the desired service (Leff
1964 and Huntingdon 1968). This is known as the “grease the wheels”
approach, to which we will return in Chapter 4.
The literature documents numerous examples of bureaucratic corrup-
tion. In Ukraine, respondents to the question “Where did you yourself
or members of your family have to give bribes, make ‘charity donations’
or gifts within the past 12 months”, mentioned the State Traffic Police
in first position with 6.1%, followed by public agencies to obtain cer-
tificates (4.1%) and permits (2.7%). When the respondents were entre-
preneurs, the answers were truly surprising: to obtain various permits
from public agencies (18.2%), during vehicle registration or inspec-
tion processes (18.0%), to obtain certificates (17.7%), at tax inspection
agencies (17.2%), and in connection with business activities during
audits (15.5%) (Council of Europe 2009). In Spain, the prosecutor
general declared during a hearing in the Spanish Congress in November
2009 that his office was investigating almost 750 cases of government
corruption, with more than 800 public officials involved. According to
the information on judicial proceedings, these cases concerned all polit-
ical parties with parliamentary representation and were related to land
classification and construction permits granted by regional and local
government officials (Villoria et al. 2013). According to Rose-Ackerman
(1997), in Thailand, 20–40% of infrastructure project funds between
1960 and 1990, although disbursed, did not go to the projects.
Other examples of bureaucratic corruption are related to governments’
social activities, such as subsidizing certain goods and services which are
sold by the authorities at below-market prices. In general, these subsi-
dies are only for targeting poor people. Documents proving entitlement
1  Definition, Amount, and Coverage    
19

are provided by the administration, with some officials supplying undue


proof in return for money. Moreover, dual prices often exist and consist of
a low state price and a higher free-market price. In some countries, includ-
ing China, a similar system exists for many raw materials which are sold
on two separate markets: one using state-subsidized prices and the other
using free-market prices. Here again, corruption is an efficient means to
gain unfair access to the subsided price. Similar behavior is reported when
the supply of credit and the rate of interest are controlled by the state.
Interviews with business people in Eastern Europe and Russia indicate that
payoffs are frequently needed to obtain credit (Rose-Ackerman 1997).

4.2 Justice

Enforcement of the rule of law is essential in a civilized society. This


task is assigned to the judiciary system. As pointed out by Hay et al.
(1996), the rule of law means that people use the legal system to struc-
ture their activities (including economic activities) and resolve disputes.
This entails learning what the legal rules are and structuring activities
according to these rules. It also includes obtaining redress from those
who break the rules by appealing to qualified institutions, such as the
courts or the police. In the economic field, laws are expected to define
and protect property rights, to set rules for trading these rights, to
define rules for entering and exiting the market, and to promote fair
competition and behavior. In this way, the justice system contributes to
protecting the freedoms, peace, and equality that foster social and eco-
nomic development (Abdulkarim 2012).
A well-functioning and effective judiciary system is crucial to the
fight against corruption (Schultz 2009). Under such a system, the inves-
tigation, exposure, and punishment of corruption cannot be blocked
by powerful politicians or businesses. Similarly, assets accumulated
through corruption by leaders of developing countries can be seized and
returned to the country of origin, which is, in general, in crucial need
of the funds. Without a well-functioning judiciary, it is much harder to
trace, freeze, seize, and confiscate the assets in question, at the expense
of the country’s development. Accordingly, an ill-functioning judiciary
20    
K. Sekkat

system and especially a corrupt system not only prevent the abovemen-
tioned benefits from materializing but also hamper efforts to reduce
corruption in other fields. For instance, a cross-country study (Herzfeld
and Weiss 2003) showed that the relative attractiveness of corruption to
bureaucrats depends on the effectiveness of the legal system and, more
specifically, on the probability of being detected and punished.
The drivers of an ill-functioning judiciary are interference and pres-
sure from executive or powerful economic interests, lack of citizen voice,
and insufficient financial and human resources (Schultz 2009). The
resulting corruption in courts is perceived as a major problem world-
wide. The 2009 Corruption Barometer published by TI showed that
nearly half of the respondents across the world considered the judiciary
to be corrupt (Transparency International 2007). The 2006 Barometer,
based on a poll of 59,661 people in 62 countries, showed that in one-
third of these countries, more than 10% of respondents who had inter-
acted with the judicial system reported paying bribes to obtain a “fair”
outcome in a court case. In Nigeria, surveys show that corruption facil-
itates the destruction of evidence and speedier hearings (Schultz 2009).
In Jordan, the dominant concern is that judges’ rulings may be influ-
enced by family or tribal affiliations. In 2005, a household survey by TI
in Bangladesh found that two-thirds of respondents who had used the
courts in the preceding year paid an average bribe of around US$108
per case, or 25% of their annual income. The survey also revealed that
39% of those who paid bribes to the judiciary said that they had paid
through lawyers, who transmitted a portion to magistrates or judges.
Public prosecutors reportedly extracted bribes from 4% of respondents
(Transparency International 2007). In India, while the upper judiciary
is relatively clean, the Center for Media Studies, based on a country-
wide survey conducted in 2005, found that bribes seemed to be fre-
quently solicited in the lower judiciary in order to get things done, with
an estimated US$580 million paid in bribes in a 12-month period. In
Indonesia, major enforcement operations against illegal timber smug-
gling have resulted in few convictions, and those who were imprisoned
were released after a short time. Advocates argue that corruption of the
police, judges, and prison officials undermines good-faith efforts to rein
in the country’s timber tycoons (Schultz 2009).
1  Definition, Amount, and Coverage    
21

4.3 Media

One important role of free media is to convey to citizens information


about rules, regulations, and services they are entitled to receive. From
this perspective, the media can monitor and reinforce the transparency
and accountability of private and public institutions. Many corrup-
tion issues have been brought to the public’s attention first through the
media. In other words, the press serves as a watchdog and a partner to
society in ensuring transparency and accountability and fighting crime
in general and corruption in particular. However, the media itself is not
exempt from corruption and potentially represents a useful asset for
bribers. For instance, recorded bribe transactions involving Peru’s for-
mer secret-police chief, Vladimiro Montesinos, show that he paid tele-
vision-channel owners 100 times in bribes what he paid to judges and
politicians (Svensson 2005). This suggests that Montesinos saw news
media as the strongest check on the government’s power.
Media corruption has different nicknames around the world. The
terms “brown envelope” or “red envelope” are used in some African
and Asian countries, but more recently the term “ATM journalism” has
become popular. The term refers to the switch to transferring bribes
into journalists’ bank accounts electronically (Ristow 2010). Other
terms such as “extortion journalism” or “sitting allowance” are also
used (Adeyemi 2013). Generally, the brown envelope is a monetary
bribe handed out to a person to put pressure on him or her to do what
the bribe-giver wants. It is any form of gratification which a journalist
may receive to cover an event or influence his/her judgment. The event
could be a press conference, an interview of any sort, a workshop, or an
impromptu or organized briefing.
Many examples highlight the scale of corruption in the media. Some
of these examples concern smaller payments, sometimes called “facili-
tation payments”, which are common in Africa, China, and elsewhere.
They consist of US$5, US$10, or US$20 inside a brown or red enve-
lope. Although supposedly provided to cover travel costs to some sort
of press event, in fact they are distributed to all journalists, whether
they have traveled or not. A Chinese journalist reports that when
this happened for the first time (the envelope contained about $44),
22    
K. Sekkat

she asked for the reason and was told that this was the “normal pro-
cedure” (Adeyemi 2013). Ristow (2010) reports different situations of
this kind. In Ghana, a reporter goes to a press conference and inside
her press packet finds a brown envelope containing the equivalent of
US$20. Not surprised, she slips it into her purse before heading back
to the office to write up the event. In Russia, a public relations agency
sends out a false press release about a fictitious company. Thirteen pub-
lications believe the lure and agree to run the release just like a story
but only against payment ranging from about $125 to nearly $2000. In
South Africa, a journalist admitted that he and several others had set up
a media relations firm which served as an “air force” to battle a politi-
cian’s rivals. The journalist added that he received around $700–$1400
per paper. However, he could not write negative reports about the poli-
tician or his allies.
Besides such direct bribes, other common ways of influencing
the media are ownership or advertising expenses. Such expenses tar-
get favorable coverage by newspapers, radio, or television of the brib-
er’s activity. Such information bias is, however, different from that
which emerges when, for instance, a newspaper publicly acknowledges
being affiliated with a given party or sharing a similar ideology. This
was the case in the USA in the second half of the nineteenth century,
when most American newspapers were partisan (Petrova 2011), and in
present-day France (e.g., l’Humanité is openly supporting the French
Communist Party). When a given media source professes objectivity but
delivers biased information, suspicions of corruption or at least capture
became very serious.
A well-known example of the use of ownership is Italy (Durante and
Knight 2012), where a single politician with an identified ideology,
Silvio Berlusconi, owns the main private television network, and where
the public television corporation is traditionally controlled by the ruling
political coalition. Durante and Knight (2012) investigated news con-
tent and viewership of the six top national television channels before
and after the change in government in 2001, which shifted the govern-
ment from a center-left coalition to Berlusconi’s center-right coalition.
The findings show that Berlusconi’s private network provided more
speaking time to the right during the period in which the right was in
1  Definition, Amount, and Coverage    
23

power than to the left during the period in which the left was in power.
Moreover, the public network shifted to the right, relative to the private
network, following the change in control of the public network from
the left to the right. In a similar vein, Djankov et al. (2003) examine
whether there is a relationship between ownership patterns of different
media (newspapers, television, and radio) and potential information
bias. In a sample of 97 countries, they identify two dominant forms
of media ownership: ownership by the state and ownership by concen-
trated private owners, namely controlling families. They find that gov-
ernment ownership of the media is greater in countries that are poorer
and have greater overall state ownership in the economy, lower levels of
school enrolment, and more autocratic regimes. More importantly, their
analysis casts doubt on the notion that state ownership of the media
serves benevolent ends. Moreover, greater state ownership of the media
(especially the press) is associated with poor performance in terms of
freedom of the press, political and economic freedom, and health status.
Turning to advertising expenses, the problem is particularly worrying
when a large share of advertising revenues comes from a limited num-
ber of institutions. Petrova (2011) uses data on American newspapers
in 1880–1885 to test whether there is a positive relationship between
the growth of the advertising market and the growth of independent
media. During that period, the majority of newspapers were affiliated
with a major political party, but some were independent. The main
difference between partisan newspapers (newspapers affiliated with the
Democratic or Republican Party) and independent newspapers was the
extent of control a party had over the paper’s news coverage. Editors of
independent newspapers could print whatever they wanted, while edi-
tors of partisan newspapers were restricted in their decisions. The results
showed that with higher sources of advertising revenues, newspapers
were more likely to be independent from political parties.
Di Tella and Franceschelli (2011) examine the extent to which the
four main newspapers in Argentina report government corruption
on their front page during the period 1998–2007 and the correlation
between the publication of such information and the amount of gov-
ernment advertising each newspaper received. The correlation is nega-
tive and significant, implying that a one standard deviation increase in
24    
K. Sekkat

monthly government advertising (0.26 million 2000 pesos) is associated


with a reduction in coverage of government corruption scandals of 25%
of a standard deviation in the measure of monthly front-page coverage.
Reuter and Zitzewitz (2006) test advertising bias within the finan-
cial media in the USA. Specifically, the paper examines whether a
given journal’s recommendations about a mutual fund is related to
the amount of advertising the journal has received from that fund.
The analysis showed a positive correlation between a fund’s lagged
advertising expenditures and the probability that this fund will be rec-
ommended in each of the finance publications in the sample (Money
Magazine, Kiplinger’s Personal Finance, and Smart Money  ). Further
investigations lead to the conclusion that the relationship is causal,
in other words that finance publications bias their recommendations
(either consciously or subconsciously) to favor advertisers. In contrast,
the authors found no such relationship between advertising and content
in other national newspapers (The New York Times and the Wall Street
Journal ).

4.4 Education

Education has positive impacts on many facets of society. Through its


contribution to human capital building, it is one of the most important
drivers of growth and development. Education also puts citizens in a bet-
ter position to voice opinions and monitor politicians. This is another
channel through which education can foster the development of democ-
racy and trust in the country’s institutions. Moreover, educational insti-
tutions play an important role in professional certification, which should
ensure good health and safety by allowing only competent doctors,
teachers, and other professionals to graduate and perform their crucial
tasks. However, corruption in education undermines such expected pos-
itive impacts. Rumyantseva (2005) reports that in the Commonwealth
of Independent States (CIS), corruption in higher education completely
annihilated employers’ and the general public’s trust in many of the
country’s colleges and universities. Many job advertisements in Russia
and Ukraine explicitly require graduates from certain universities.
1  Definition, Amount, and Coverage    
25

Many forms of corruption in education are also present in other


sectors (e.g., procurement, hiring, and misuse of public funds). The
scale of and the means for fighting these forms of corruption are not
so different in education from in other sectors (Rumyantseva 2005).
However, other forms of corruption are specific to education and
deserve particular attention because of the different and additional dam-
age they create for society. Beside the costs of resource misallocation
and extortion of citizens’ funds, corruption in education may impact
the quality of human capital, which is one of the most precious assets
in a society. As a consequence, in this section we will focus on educa-
tion-specific corruption.
Education-specific corruption involves students, teachers, research-
ers, and administrators. It has direct effects on students’ values, beliefs,
and life chances. It includes, among other things, payment of bribes to
get higher grades, purchase of diplomas, and unfair admission to cer-
tain universities. Besides the direct approach, by which a student offers
money to a professor in order to get a good grade even though he or
she does not know the subject, there are other ways to pay for grades.
For example, a faculty member might sell a term paper to a student,
or a professor might give a low grade to a student who knows the sub-
ject and recommend private tutoring, so giving an implicit guarantee
that the student will pass regardless of how much he/she has learned.
Finally, corruption to secure unfair admission can be direct or indirect.
For instance, a prospective student’s parents could make a donation to
the university in order to guarantee their child’s future admission.
All these forms of corruption are encountered in developed and
developing countries. Johnson (2008) provides many examples from
around the world. In China, children are supposed to attend schools
closest to their homes. However, parents can put their children in other
schools that are further away by giving “gifts” to these schools. Such
donations for school admissions are also common in India. In Russia,
the cost of a bribe to get into a top Moscow university can be more than
the cost of tuition for all five years of studies (Bennet 2001). In fact,
out of 900 million rubles spent on education a year, half goes in bribes.
In Kazakhstan’s universities, future doctors are graded according to the
amount of money they give professors or their family networks. Turning
26    
K. Sekkat

to more-developed countries, the most common corrupt practice in the


USA consists in wealthy Americans buying their children’s admission
to the most prestigious colleges and universities by making donations
to those institutions. Such donations are sometimes very generous and
include endowed scholarships, study centers, and buildings. According
to Johnson (2008), in Great Britain, officials at Oxford‘s Pembroke
College supposedly said that admission might be possible in exchange
for a donation of approximately £300,000.
Fake diplomas are another field of corruption in higher education
that deserves special attention. This phenomenon is increasingly attract-
ing the attention of the international community, including the media,
governments, and universities. While there is no consensus on how to
characterize a fake degree, we follow Grolleau et al. (2008) in consider-
ing that fake diplomas include both copies from authentic institutions
and degrees that can either be bought or earned with little work from a
somewhat legal institution that sells “degrees”. To illustrate the serious-
ness of the issue, imagine that the surgeon working on your body has
no accredited diploma, that the house you just bought was constructed
under the supervision of an architect with a fake diploma, or that law-
yer representing you before a court has no law credentials. Although
the history of fake diplomas can be traced back to the time of the first
academic degrees, the extent of the problem is becoming so large that
firms are now hiring specialized private services to verify college degrees
and other educational qualifications. In January 2005, two experts in
the area argued that the fake degree business is a billion-dollar industry
that has sold more than a million fake college diplomas (Grolleau et al.
2008). The recent growth is impressive, with Cohen and Winch (2011)
reporting an increase in 839 (48%) between 2010 and 2011 in the total
number of bodies delivering fake diplomas around the world. While the
increase concerns all regions, North America and Europe continue to
host the largest number of such bodies, with 1095 in North America
(up from 892, an increase in 23%) and 603 in Europe (up 31% from
the previous year’s total).
Besides the industry described above, fake diplomas might also
come from well-established and accredited institutions. According to
Transparency International (2013), in Niger selling diplomas is the
1  Definition, Amount, and Coverage    
27

easiest source of income for some public officials. Today, the price of
a BEPC (junior high school diploma) is roughly equivalent to an aver-
age teacher’s monthly salary (US$175), while a BAC (final high school
diploma) can be bought for twice that. In 2006, 20 teachers were
arrested in a single investigation for cheating during the baccalauréat
exams. Ten were later found guilty of corruption and dismissed from
their posts. Transparency International (2013) also reports the case of
a former professor of the Institute of the History of Medicine at the
University of Würzburg (Germany) who was suspected of having super-
vised and supported dozens of inadequate doctoral theses prior to his
retirement in 2005. In general, these theses numbered around 35 pages
and contained only meager meaningful research achievements. The pro-
fessor was additionally suspected of accepting donations from doctoral
students for his nonprofit societies. He had already paid a moderate fine
for accepting €6000 (US$7390) from a consultant who connected him
with physicians seeking doctoral degrees.

4.5 Medical

Like education, medical services play an important role in society.


Good health is a crucial determinant not only of individual well-be-
ing but also of economic and social development. Moreover, spending
on health care represents a non-negligible share of national spending,
amounting to approximately US$3 trillion and ranging from 5% of
GDP in low-income countries to more than 15% in OECD countries
(Holmberg and Rothstein 2011). The substantial resources spent in
health sectors offer ample opportunities for abuse and illicit gain. As a
result, corruption also undermines service delivery in the health sector
(Hussmann 2011b). In the USA, fraud and abuse in health care are esti-
mated to cost US$11.9 billion–US$23.2 billion per year. In Colombia,
overpayments for seven specific medications in 32 public hospitals have
been estimated at more than US$2 million per year. This amount would
have paid for health insurance coverage for 24,000 people. The 2006
report by Transparency International shows that corruption and similar
practices affect many different areas of the health sector, such as hospital
28    
K. Sekkat

administration, under-the-table payments to doctors, counterfeit drugs,


and over-billing of insurance companies. In rural Tanzania, the majority
of deaths caused by malaria can be attributed to corrupt practices in the
form of drug stealing, provider absenteeism, stolen equipment, and very
low levels of diagnostic efforts (Holmberg and Rothstein 2011).
As with education, corruption in health services also takes forms sim-
ilar to those in other sectors. However, a number of specific features
make the health sector particularly vulnerable to corruption (Hussmann
2011a). Inherent uncertainty about outcomes, asymmetry of informa-
tion between patients and physicians, and large numbers of participants
are examples of specific features that hinder transparency and accounta-
bility and create opportunities for corruption. The importance of these
specific features is reflected in two parts of the health care process: at the
point of health service delivery and in the pharmaceutical and equip-
ment supply chain (Transparency International 2006).
In service delivery, these specific features hamper the ability of
patients to judge the decisions made on their behalf or assess the cor-
rectness of a bill. Similarly, insurance auditors have a hard time assessing
whether billing is correct and whether the services provided were nec-
essary. This can result in parties extorting or accepting under-the-table
payments for services that are supposed to be provided free of charge
and soliciting payments in exchange for special privileges or treatment
(Transparency International 2006).
Examples of corruption in health services exist all over the world. In
Morocco, after being examined in a public hospital, a woman got a pre-
scription for pills that she could not afford. Although she was entitled
to receive the pills for free from the public hospital, a hospital employee
told her that the pills were not available but that, for 20 or 30 dirhams,
it would be possible to find “free medication” somewhere in the hospi-
tal (Transparency International 2006). In India, immediately after giv-
ing birth, a woman asked to hold her baby on her chest. However, a
nurse took the infant away, and an attendant told the mother that the
customary price to hold her own child directly after giving birth was
US$12 for a boy and US$7 for a girl (Holmberg and Rothstein 2011).
US$12 was a substantial amount of money for the family since the
husband was working for less than US$1 a day. In Cambodia, health
1  Definition, Amount, and Coverage    
29

workers have reported that it costs up to US$100,000 to get the posi-


tion of director at the provincial or national offices of the Health
Ministry. A low-level public servant job in the health sector may go for
US$3000. These sums represent a large investment since government
employee salaries generally average US$40 per month (Transparency
International 2006).
At the level of the pharmaceutical and equipment supply chain,
products can be diverted or stolen at various points in the distribution
system, officials may demand “fees” for approving products or for set-
ting prices, doctors may adapt prescriptions to favor certain drug man-
ufacturers, and experts can ask for or accept bribes to influence hiring
decisions and decisions on licensing, accreditation, or certification of
facilities. Even more worrying is the fact that counterfeit or other forms
of substandard medicines may be allowed to freely circulate in the coun-
try. According to Hussmann (2011a), in the USA, up to 15% of all
drugs sold are fake, and in some countries, this figure can rise to 50%.
In Chad, the country’s regions received only a third of the centrally
allocated health resources, while in Cambodia, 5–10% of the health
budget is already lost at the central level. In Tanzania, local or district
councils divert up to 41% of centrally disbursed funds (Transparency
International 2006).
We deliberately end this section by illustrating the point that cor-
ruption in the health sector can be a matter of life and death, espe-
cially for poor people in developing countries. Estimates suggest that
in 2001 alone, 192,000 people died in China because of fake drugs
(Transparency International 2006). An IMF study across 71 countries
showed that countries with higher corruption also have higher infant
mortality rates, even after adjusting for income, female education,
health spending, and urbanization (Gupta et al. 2014).

4.6 Water

Like health, water is an essential factor in life and socioeconomic


well-being. In developing countries, about 80% of health problems
can be linked to inadequate water and sanitation. Nearly 1.8 million
30    
K. Sekkat

children die every year, and around 443 million school days are lost
by children who suffer from water-related sicknesses. In some African
regions, people need to walk more than ten kilometers to gather water
in the dry season. It is also estimated that around 5% of GDP in
Africa is lost due to illness and death caused by dirty water and poor
sanitation. In El Salvador, Jamaica, and Nicaragua, the poorest house-
holds spend more than 10% of their income on water, while those in
rich nations pay only a third of this share. These consequences of water
availability are exacerbated by corruption and chiefly affect the poor and
women (Transparency International 2008).
Corruption in the water sector can be encountered at different lev-
els of the supply chain, including connection to a water network, cus-
tomer billing, and construction. It involves petty and grand corruption
and affects water availability as well as allocation between different users
and uses (safe drinking water, irrigation processes, water for energy use).
All of these can constitute serious impediments to food security, poverty
reduction, equity, and environmental protection.
The poor are the main victims of water corruption. In some develop-
ing countries, corruption is estimated to raise the price for connecting
a household to a water network by as much as 30%. A utility connec-
tion in Manila is equal to about three months of income for the poorest
20%, while the equivalent figure is six months in Kenya and more than
a year in Uganda. Globally, two-thirds of the 1.2 billion people who do
not have access to safe drinking water live with less than US$2 a day,
and of the more than 2.6 billion people who lack basic sanitation, a half
fall below that same poverty line. But water problems are not just an
important cause of economic poverty; they are also a consequence of it.
There is a bidirectional causal relationship between poverty and the lack
of water. A company in charge of water distribution might be reluctant,
especially if the company is private, to expand its network to low-in-
come areas instead of rich ones. The reason is that, for a similar cost,
the company will have to deal with poor customers who struggle to pay
bills, rather than wealthy families.
Besides the issue of poverty, corruption in the water sector has dra-
matic effects on the environment. A very limited number of compa-
nies properly treat sewage before discharging water into rivers. The vast
1  Definition, Amount, and Coverage    
31

majority of them ignore guidelines to install cleaner technologies on the


grounds that it would cost too much. Corruption is a significant facili-
tator in these cases. As a result, in China, for example, aquifers in 90%
of cities are polluted, more than 75% of river water flowing through
urban areas is unsuitable for drinking or fishing, and 30% of river water
throughout the country is regarded as unsuitable for agricultural or
industrial use. Moreover, about 700 million people drink water con-
taminated with animal and human waste. Water pollution has caused
illness in 190 million Chinese people and is responsible for an estimated
60,000 premature deaths every year. Environmental degradation and
pollution are believed to reduce China’s GDP by 8–12% annually.
While developed countries are less affected by petty corruption in the
water sector, they have to deal with major issues in terms of grand cor-
ruption. In both groups of countries, the award of contracts for water
facilities is a fertile field for corruption (Transparency International
2008). Corruption can take the form of cash payments or other types
of benefits, ranging from gourmet dinners and sumptuous holiday trips
to luxury apartments, all for the purpose of securing the award of water
and sanitation contracts or influencing their design. In Milan, an exec-
utive of a private water company was imprisoned in 2001 for planning
to bribe local politicians with around US$2.9 million to win a US$145
million wastewater treatment contract. The city council president was
also convicted and jailed. In Chicago, the head of the water department
was found guilty of extorting campaign contributions from subcontrac-
tors. Under Japan’s “dango” system, bidders for public works projects
decide among themselves who will win contracts. However, all members
of the group submit arranged bids to public agencies to maintain the
illusion of competition. In Lesotho, the chief executive of the Lesotho
Highlands Development Agency was found guilty of accepting more
than US$6 million in bribes from multinational companies to secure
tenders for a project worth US$8 billion. In 2002, he was sentenced
to 18 years in prison. Multinationals from the UK, France, Germany,
Italy, Canada, and other countries have also been prosecuted for seek-
ing to influence the tendering procedure. Finally, a survey in South Asia
suggests that contractors frequently pay between 1 and 6% of contract
values in bribes to win contracts. During construction, additional bribes
32    
K. Sekkat

can increase the costs to companies by up to another 11% of the con-


tract value. In addition to securing the award of contracts, corruption
also helps to conceal low-quality work and non-delivery of goods.

5 Conclusion
Corruption is a very complex phenomenon. It is old, which means that
it is persistent and very hard to eradicate. Corruption is also highly
widespread, affecting almost every country and every human activ-
ity. This implies that fighting it may require the cooperation of a large
number of bodies and institutions. Finally, corruption is multifaceted. It
takes different forms, including bribery, nepotism, theft of state assets,
and diversion of state revenues. The amounts involved range from small
payments to low-ranking officials in exchange for services that citizens
are entitled to in any case (i.e., “petty” corruption) to large payments
to high-ranking officials and ministers in exchange for influence over or
changes to regulations and other state rules (i.e., “grand” corruption).
However, it is misleading to associate corruption purely with the pub-
lic sector, as this category of participants does not have a monopoly on
corruption. Although public sector participants represent a large share
of the persons and entities involved, the literature provides a wealth
of examples of corrupt acts outside the public sector featuring private
firms, sports, trade unions, the media, and NGOs. Furthermore, cor-
ruption is not always an illegal activity. Depending on history, customs,
and values, the same practice may be considered as illegal in one coun-
try, but not in another.
The economic impact of corruption is very difficult to assess, but
some anecdotes and estimates are illuminating. In South India, an irri-
gation engineer may pay bribes of up to 14 times his annual salary in
order to obtain two-year tenure at a particular location. This is because
of the size of the bribes the engineer expects from this position. In
Cambodia, health practitioners estimate that even before the health
budget leaves central government, more than 5% is lost to corruption.
At the global level, a conservative estimate puts bribes between firms
and public officials or politicians at about US$1000 billion annually,
1  Definition, Amount, and Coverage    
33

which is equivalent to Mexico’s GDP (in 2000, PPP current). These fig-
ures do not take account of the significant losses to a country’s invest-
ment, private sector development, and economic growth.

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2
Measurement Issues

Talking about corruption, its prevalence, causes, consequences and dif-


ferences across countries implies the ability to measure the phenom-
enon. For a long time, due to a lack of systematic investigations and
data collection, the magnitude of corruption had to be assessed using
anecdotal or case-study evidence. Since the 1980s, a number of national
and international institutions as well as NGOs have devoted remarkable
efforts to helping document the scale of corruption. Broadly speaking,
there are three groups of approaches to assessing corruption. One group
is based on the perception of different experts about the prevalence of
corruption in a country or a sector. The second group relies on actual
acts of corruption and draws either on justice records (or other poten-
tial sources) regarding corruption convictions or on individuals’ experi-
ences with corruption. The last group uses Public Expenditure Tracking
Surveys and Quantitative Service Delivery Surveys to reveal potential
corruption. The following analysis compares the different approaches
to measuring corruption as well as their results. It also tackles an
important issue for our purpose (i.e., fighting corruption), namely the
degree of persistence of corruption. The aim is to get an idea of the

© The Author(s) 2018 39


K. Sekkat, Is Corruption Curable?, https://doi.org/10.1007/978-3-319-98518-3_2
40    
K. Sekkat

approximate time needed before citizens notice a potential improve-


ment on the corruption front.

1 Measurement Issues
There is a rich body of literature dealing with corruption, its prevalence,
causes, consequences, and differences across countries. The preliminary
step to any of these analyses is to build an adequate measure of the phe-
nomenon. Such measures are important for a variety of participants,
including international investors, international and national institu-
tions, official development, and aid agencies and researchers.
Numerous corruption indicators are now provided by various organ-
izations such as Transparency International (Corruption Perceptions
Index, CPI, and Bribe Payers Index, BPI), the European Bank for
Reconstruction and Development (EBRD), the World Bank (Business
Environment and Enterprise Performance Survey, BEEPS, and
Worldwide Governance Indicators Database, WGI), the International
Budget Partnership (Open Budget Survey), the Business International
Corporation, now a part of the Economist Group (corruption or ques-
tionable payments in business transactions), Gallup International
(Voices of the People Survey), the PRS Group (International
Country Risk Guide, ICRG), the World Economic Forum (Global
Competitiveness Report, GCR), and the United Nations (International
Crime Victims Surveys, ICVS) (see Arndt and Oman 2006; Malito
2014 for further discussion).1 This increased attention to corrup-
tion measures and to the quality of governance in general in develop-
ing—and emerging-market economies is explained by a combination
of reasons: (i) The spectacular increase in international investment in
developing countries, (ii) The end of the Cold War, (iii) The failure of
development policy reforms in the 1980s and 1990s, and (iv) Increased

1With a few exceptions (e.g., CPI, BEEPS, and WGI), these ratings are produced by private

risk-rating agencies and accessing them costs several thousand dollars (Mauro 1995).
2  Measurement Issues    
41

awareness of the importance of politics in economic development and


policy reform (Arndt and Oman 2006).
Corruption indicators can be classified according to various dimen-
sions: Whether they are conducted by means of interviews with experts
or with persons (including firms); whether they are first-hand or based
on a combination of other indicators; and whether they are based on
perception or actual experience. An example of an indicator using pools
of experts who assess the level of corruption prevailing in a country
is the Business International Corporation indicator. In contrast, the
indexes provided in the World Economic Forum’s GCR or the United
Nations’ ICVS are based on surveys of persons (including firms).
The Control of Corruption Index, which is part of the WB’s World
Governance Indicators, and the ICRG index are composites based
on other indexes and aggregated following different methodologies.
Perception-based indexes include TI’s Corruption Perceptions Index,
while those based on experience include the ICVS index. While all
these indexes are based on surveys of opinions or experiences, another
measure, mainly used by studies on the USA, is based on the number of
convictions for the abuse of public office in a US state. The data come
from the Public Integrity Section of the US Department of Justice and
pertain only to convictions that result from federal prosecutions.
Users of these indicators are very diverse and include international
investors, aid agencies, development analysts, academics, and govern-
ments. For investors, these indicators help to assess the risk of invest-
ing in or lending to a given country. Very often, business is confronted
with corrupt behavior. The most common such behavior takes the form
of demands for special payments and bribes connected with regulations
such as import and export licenses, exchange controls, tax assessments,
police protection, or loans. Such corruption makes it difficult to con-
duct business effectively and in some cases may entail the withdrawal or
cancelation of an investment project. As far as official national and mul-
tilateral aid agencies are concerned, these indicators are increasingly and
extensively considered as useful to guide official development assistance
allocation decisions. Many bilateral and multilateral donors use the
rankings provided by these aggregate indicators to determine the bene-
fits of providing aid, and how much, to a given country. The reason for
42    
K. Sekkat

this is that corruption distorts the economic and financial environment


and reduces the efficiency of the allocated aid (Arndt and Oman 2006;
Razafindrakoto and Roubaud 2010).

2 Selected Indicators
This section compares the three most widely used indicators of percep-
tion of corruption: the CPI, ICRG, and WGI. While the CPI and the
WGI are available free of charge, the ICRG has to be bought from the
PRS Group. Since most of the debate about the merits of different indi-
cators focuses on perceptions versus reality, we also consider an indica-
tor based on experience and drawn from the World Enterprise Surveys
(WES), which are also available free of charge. Conducted by the World
Bank in various countries, the WES ask, among other things, questions
about managers’ experiences with corruption. The following presenta-
tion is brief, and the interested reader should consult the respective
organizations’ websites for more detailed information.

2.1 Corruption Perceptions Index

The CPI is produced by Transparency International (TI), which is an


NGO with a secretariat in Berlin. TI was established in the early 1990s
at the initiative of a few individuals who decided to take a stand against
corruption. Now TI is present in more than 100 countries. It works
with partners in government, business, and civil society to put effective
measures in place to tackle corruption. TI is funded by various govern-
mental agencies, international foundations, and corporations. It claims
to be politically non-partisan and places great importance on inde-
pendence. As a part of its activity, TI publishes the CPI, which assesses
expert perceptions of the level of corruption in the public sector across
countries, the Global Corruption Barometer, which is concerned with
attitudes toward and experiences of corruption among the general pub-
lic, and the Bribe Payers Index, which focuses on the propensity of a
country’s firms to bribe abroad.
2  Measurement Issues    
43

The most widely used indicator in academic research is the CPI,


which ranks countries in terms of the degree to which corruption,
defined as the abuse of public office for private gain, is perceived to exist
among public officials and politicians. It is a composite index, a poll of
polls, drawing on data from experts (including those living in the coun-
tries being evaluated) and business surveys carried out by a variety of
independent and reputable institutions, such as Freedom House (FH),
Gallup International (GI), the Economist Intelligence Unit (EIU), the
International Crime Victims Survey (ICVS), the World Bank, and the
World Economic Forum (WEF). The surveys used in compiling the
CPI ask questions relating to the misuse of public power for private
benefit including bribery, kickbacks, and embezzlement. The index is
computed yearly as an average of other indexes. A standardization pro-
cedure converts all the data sources to a scale of 0–100 where 0 indi-
cates the highest level of perceived corruption and 100 the lowest level
of perceived corruption.
For a country to be included in the CPI, a minimum of three reliable
sources of corruption-related data is required. Accordingly, inclusion in
the index is not an indication of the existence of corruption but of the
availability of data. The country with the lowest CPI score is the one
where corruption is perceived to be greatest among those included in
the list. However, one of the drawbacks of the CPI is that year-to-year
differences in country scores do not only result from changing percep-
tions of the country’s performance but also from changes in sample and
methodology (Lambsdorff 1999). For this reason, a time comparison
of the index is not recommended. Moreover, the reliability of the CPI
differs across countries. The scores of countries with a high number of
sources and small differences in evaluations are more reliable.

2.2 International Country Risk Guide

The ICRG is produced by the PRS Group, Inc., a private firm based
in Syracuse, USA. Founded in 1979, the PRS Group is a global leader
in political risk assessment and country risk forecasts. It produces a
number of products at regular intervals throughout the year. These
44    
K. Sekkat

publications and data are used extensively by investors and businesses,


colleges and universities, private equity groups, and the main multilat-
eral institutions.
ICRG staff collect political information and financial and eco-
nomic data and convert them into risk points for each individual risk
component (political, financial, and economic risk). The political risk
assessments are made on the basis of a subjective analysis of the availa-
ble information, while the financial and economic risk assessments are
made solely on the basis of objective data. In addition, the ICRG pro-
vides an overall score for each country.
The political subcategory of the ICRG is the one that is relevant to
our purpose since it covers corruption. In fact, the political subcat-
egory is the sum of 12 components covering both political and social
attributes. The components and their score intervals (in parentheses)
are Government Stability (0–12), Socioeconomic Conditions (0–12),
Investment Profile (0–12), Internal Conflict (0–12), External Conflict
(0–12), Corruption (0–6), Military in Politics (0–6), Religious Tensions
(0–6), Law and Order (0–6), Ethnic Tensions (0–6), Democratic
Accountability (0–6), and Bureaucracy Quality (0–4). The highest value
is 100 and the lowest is zero. Higher values mean less risk.
The corruption component is an assessment of corruption within the
political system. It takes account of the most common form of corrup-
tion encountered directly by business, which is financial corruption in
the form of demands for special payments and bribes connected with
import and export licenses, exchange controls, tax assessments, police
protection, or loans. However, the measure is more concerned with
actual or potential corruption in the form of excessive patronage, nepo-
tism, job reservations, “favor-for-favors”, secret party funding and suspi-
ciously close ties between politics and business.

2.3 Worldwide Governance Indicators

The WGI are produced as a part of the WB’s “Governance Matters”


project. The indicators measure perceptions of six dimensions of gov-
ernance in most of the countries in the world. The six dimensions are
2  Measurement Issues    
45

Voice and Accountability, Political Stability and Absence of Violence,


Government Effectiveness, Regulatory Quality, Rule of Law, and
Control of Corruption. The indicators are based on a statistical compi-
lation of responses on the quality of governance given by a large num-
ber of enterprises, citizens, and expert surveys reported by a number of
institutes, think tanks, non-governmental organizations, and interna-
tional organizations. Respondents are from both industrial and develop-
ing countries. The governance indicators cover over 200 countries and
territories since 1996. Each indicator varies between −2.5 and +2.5,
with higher values meaning better conditions.
The Control of Corruption Index (CCI) assesses perceptions of the
extent to which public power is exercised for private gain, including
both petty and grand forms of corruption, as well as state capture by
elites and private interests.

2.4 World Enterprise Surveys

The WES began in 2002 and have been conducted by different units
within the World Bank (previous names include PICS and Investment
Climate Surveys). Since 2006, most data collection efforts have been
centralized within the Enterprise Analysis Unit. Centralizing survey
implementation has resulted in a unified set of core survey questions
and consistent application of survey methodology across countries.
The WES is a firm-level survey of a representative sample of an
economy’s private sector. The surveys cover a broad range of informa-
tion including firm performance and a set of business environment
variables such as access to finance, corruption, infrastructure, crime,
and competition. The WES team collects these data from face-to-face
interviews with top managers and business owners in over 155,000
companies in 148 developing economies. The enterprise surveys imple-
mented in Eastern Europe and Central Asia are also known as Business
Environment and Enterprise Performance Surveys (BEEPS) and are
jointly conducted by the WB and the EBRD. Examples of questions
asked in the framework of the WES and related to corruption are: (i)
When visited by an inspector, has a gift or an informal payment been
46    
K. Sekkat

requested? (ii) What percentage of the value of a contract with the gov-
ernment should your firm pay to officials to secure contract? and (iii)
What percentage of an import transaction should your firm pay to cus-
toms officials?

2.5 Criticisms

The common indicators of corruption have been widely criticized.


Some criticisms concern the appropriateness of measuring an unobserv-
able phenomenon and pertain to the whole group of indicators. Others
concern specific indicators. In what follows, we focus on the criticisms
pertaining to the whole group of indicators. Criticisms of specific indi-
cators, being largely concerned with the distinction between perception
and experience, are discussed separately (Sect. 3).
Regarding the indicators as a group, one fundamental criticism con-
cerns the relationship between the definition of corruption and its
measurement (Andersson and Heywood 2009). Definitions determine
what should be captured when measuring corruption and therefore con-
dition the manner in which the methodology for collecting the infor-
mation is set up. Just as there is no one definition of corruption, so
there is no one unique way of constructing the indicators. Accordingly,
the validity of a given measure is only relevant for the type of corrup-
tion covered by the definition.
What is more, almost all indicators are based on expert opin-
ions and/or surveys of citizens and firms. According to Bertrand and
Mullainathan (2001), responses to survey questions are in many
instances subjective. In addition to the subjectivity in interpreting the
same facts, there are different issues connected with the way the sur-
veys are conducted. For instance, survey responses may be affected by
the ordering of questions. Whether question X is preceded by ques-
tion Y or vice versa can substantially affect the answers. One reason for
this effect is that people attempt to provide answers consistent with the
ones they have already given in the survey. Another effect is related to
the wording of questions. A classic example concerns the responses to
the two following questions: “Do you think the United States should
2  Measurement Issues    
47

forbid public speeches against democracy?” and “Do you think that
the United States should allow public speeches against democracy?”
Experiments show that while more than half of respondents answered
yes to the first question (public speeches against democracy should be
forbidden), three-quarters answered no to the second (public speeches
against democracy should not be allowed). Finally, and more funda-
mentally, respondents may make little intellectual effort in answering
the questions. They may not try to recall all the relevant information or
to completely read all the alternative responses. Hence, the order of the
possible responses in the list matters because respondents may simply
pick the first or last available alternatives in the list.
Turning now to experts, their opinion is, in general, based on infor-
mation collected through publications or the media, which may bias
their judgment For instance, the media may report on cases of corrup-
tion precisely because an active anti-corruption policy has been put in
place. Experts might then consider that corruption is high or rising
when just the opposite is true (Razafindrakoto and Roubaud 2010).
Experts can also influence one another or use the same source, which
greatly reduces the gains from using multiple experts. Moreover, cor-
ruption is a complex and multifaceted phenomenon, which raises the
issue of weighting its different dimensions. For instance, in a country
where bureaucratic (petty) corruption is low and political (grand) cor-
ruption is high, how should scores be weighted in comparison with a
country where the reverse holds? Another issue concerns the fact that
the indicator for a country is, in general, composite and based on dif-
ferent sources. Not only might aggregating different data sources be
problematic, but the different sources might not cover all the countries
under consideration, which implies that alternative sources of informa-
tion need to be found. If missing data for some indicators force experts
to derive information from other sources, the final outcomes might not
be reliable unless the necessary efforts are devoted to examining whether
the information from the different sources can be adequately aggregated
(Razafindrakoto and Roubaud 2010).
In defense of the existing corruption indicators, their supporters
point to the fact that the estimated effect of these indicators on vari-
ous economic variables corresponds to the theoretical expectations,
48    
K. Sekkat

which constitutes indirect proof of their relevance. If the indicators only


captured noise, they should not be significantly associated with real
phenomena (Razafindrakoto and Roubaud 2010).
Bertrand and Mullainathan (2001) provide a more careful treatment
of the concerns about the measurement of corruption. They recall first
that if the measurement error is white noise and uncorrelated with the
characteristics of the individual, there should be no problem. However,
the above discussion suggests that the measurement error is unlikely to
be white noise. First, the mean of the error term will not necessarily be
zero within a survey. For example, the fact that a survey uses “forbid”
rather than “allow” in a question will affect answers. Second, many of
the findings in the literature suggest that the error term will be corre-
lated with observable and unobservable characteristics of individuals.
The authors therefore conducted various experiments which led to two
important insights. First, if the measurement error is small enough,
subjective measures may be helpful as independent variables in predict-
ing outcomes, with the caveat that the coefficients must be interpreted
with caution. Second, subjective variables cannot reasonably be used as
dependent variables, given that the measurement error likely correlates
in a causal way with the explanatory variables
In the context of the debate about measurement, Svensson (2005)
argues that other approaches can lead to a better assessment of corrup-
tion. Public Expenditure Tracking Surveys (PETS) and Quantitative
Service Delivery Surveys (QSDS) are among these approaches. These
surveys permit measurement of corruption at the level of individual
agents, such as schools, health clinics, or firms. They also permit the
study of mechanisms responsible for corruption, including capture of
public funds and bribery. They therefore seem useful for locating and
quantifying political and bureaucratic capture, leakage of funds, and
other problems. Typical PETS consist of surveys of frontline providers
(schools and clinics and their staff) and local government (politicians
and public officials) complemented by central government financial and
other data. Such surveys track the flow of resources through the differ-
ent levels in order to determine how much of the originally allocated
resources reach each level. QSDS consist of systematic quantitative data
collection on finances, inputs, outputs, pricing, quality, oversight, and
2  Measurement Issues    
49

other aspects of service provision. They can be applied to government,


private for-profit and not-for-profit providers. However, PETS and
QSDS require considerable effort, cost, and time compared with some
of their alternatives, especially surveying perceptions of users. These
approaches have been used in Uganda, Ghana, Peru, Tanzania, Zambia,
and Bangladesh.

2.6 Comparative Analysis of the Indicators

In this section, we compare country corruption rankings to see the


similarities and differences across indicators. We start by comparing
the three perception indicators for the year 2010. For each indicator,
countries are classified into quartiles according to their scores, from the
most corrupt to the cleanest. Then, we cross the classifications of each
pair of indicators, which gives three panels in Table 1. We keep only the
countries which are present in the sources under comparison. The num-
ber in the diagonal gives the number of countries that are classified in
the same quartile by both sources. For instance, in the first panel of the
table, 24 countries, that is 18% of the total number of countries, are
classified in the first quartile (most corrupt) based on both the CPI and

Table 1  Comparison of country rankings based on perception indicators in 2010


1st quartile 2nd quartile 3rd quartile 4th quartile
CPI
ICRG 1st quartile 24 (18%) 8 (6%) 1 (1%) 0 (0%)
2nd quartile 8 (6%) 16 (12%) 9 (7%) 0 (0%)
3rd quartile 2 (1%) 10 (7%) 19 (14%) 2 (1%)
4th quartile 1 (1%) 3 (2%) 3 (2%) 29 (21%)
CPI
WGI 1st quartile 31 (23%) 2 (1%) 0 (0%) 0 (0%)
2nd quartile 4 (3%) 29 (21%) 0 (0%) 0 (0%)
3rd quartile 0 (0%) 6 (4%) 27 (20%) 0 (0%)
4th quartile 0 (0%) 0 (0%) 5 (4%) 31 (23%)
WGI
ICRG 1st quartile 23 (17%) 9 (7%) 1 (1%) (0%)
2nd quartile 7 (5%) 14 (10%) 11 (8%) 1 (1%)
3rd quartile 2 (1%) 8 (6%) 20 (15%) 3 (2%)
4th quartile 1 (1%) 2 (1%) 1 (1%) 32 (24%)
50    
K. Sekkat

ICRG. The next cell down in the panel shows that eight countries (6%
of the total) are classified in the second quartile by the CPI but rank in
the first quartile according to the ICRG.
The first panel in the table shows that based on the CPI, 35 coun-
tries are classified in the first quartile, 37 in the second quartile, 32 in
the third, and 31 in the fourth. In percentage terms, this gives 26, 27,
24, and 23%, respectively. According to the ICRG, the distribution is
33 countries for each of the first three quartiles and 36 for the fourth.
In percentage terms, this gives 24 and 26%. Although only indicative,
these results suggest that a CPI-based classification leads to a slightly
more “severe” judgment about countries’ corruption than one based on
the ICRG. According to the CPI, the most corrupt countries account
for 26% of the total, while based on the ICRG the share is 24%. The
shares of the least corrupt countries are 23 and 26%, respectively. In the
second panel, the distribution based on the CPI is, of course, the same
as in the first panel. Surprisingly, the distribution based on the WGI is
very similar to the one based on the ICRG in the first panel. The third
panel confirms the fact that the ICRG—and WGI-based results are
similar. It therefore seems that considering either the ICRG or the WGI
as a second indicator in addition to the CPI can be informative, but
that adding a third indicator does not bring any new information.
The first panel in Table 1 also shows that the classification of 88
countries across quartiles stays the same irrespective of the classification
base considered (CPI or ICRG). This represents 65% of the total num-
ber of countries in the sample. The second panel shows that the classi-
fication of 118 countries across quartiles stays the same irrespective of
the classification base considered (CPI or WGI). This represents 87% of
the total number of countries in the sample. When taken together with
the discussion about the distribution based on each index separately, it
seems that using both the CPI and the ICRG (rather than the WGI)
can offer a more balanced view about a country’s corruption.
Having compared the perception indexes, we turn now to their
comparison with an index based on experience. This is the index con-
structed based on responses to the WES, which focuses on firms in
developing countries only. While the period of the responses corre-
sponds to the 2000s, the year of response differs across countries, as do
2  Measurement Issues    
51

Table 2  Comparison of country rankings: Experience versus perception


1st quartile 2nd quartile 3rd quartile 4th quartile
CPI
WES 1st quartile 12 (14%) 7 (8%) 1 (1%) 0 (0%)
2nd quartile 6 (7%) 9 (11%) 5 (6%) 2 (2%)
3rd quartile 2 (2%) 3 (4%) 11 (13%) 4 (5%)
4th quartile 0 (0%) 5 (6%) 3 (4%) 14 (17%)
ICRG
WES 1st quartile 7 (8%) 8 (10%) 1 (1%) 4 (5%)
2nd quartile 9 (11%) 7 (8%) 5 (6%) 1 (1%)
3rd quartile 2 (2%) 10 (12%) 5 (6%) 3 (4%)
4th quartile 0 (0%) 5 (6%) 7 (8%) 10 (12%)

country scores. Table 2 shows that the distribution of countries across


quartiles based on the CPI is similar to the distribution based on the
WES. In contrast, the distribution based on the ICRG is different from
the one based on the WES. Moreover, according to the WES, the share
of firms in the fourth quartile (least corrupt) is much higher than the
share derived from the ICRG. Conversely, according to the WES, the
share of firms in the second quartile (corrupt) is much lower than the
share derived from the ICRG. With the relevant caveats, a country is
more likely to be classified as corrupt based on the ICRG than based
on the WES. The first panel in Table 2 shows that the classification of
46 countries across quartiles stays the same irrespective of the classifi-
cation base considered (CPI or WES). This represents 55% of the total
number of countries in the sample. In contrast, the number of coun-
tries which are in the same quartile according to both the ICRG and the
WES is 29, or 35% of the total. Overall, the results suggest non-neg-
ligible differences in country corruption rankings between percep-
tion-based and experience-based measures.
Ahmad (2001) provides a more rigorous analysis of the potential
differences across perception-based measures of corruption. The meth-
odologies used include absolute rank correlation, rank correlation over
time, rank correlation across groups of countries and regressions. The
regression analyses aim at examining whether corruption indexes can
be explained by the same set of variables, which is another method of
comparison.
52    
K. Sekkat

For correlations, four sources of indicators are considered: (i) World


Competitiveness Report (WCR) in 1990, 1992, 1994 and 1996, (ii) TI
from 1995 to 1998, (iii) the ICRG from 1982 to 1995, and (iv) WGI
in 1996. The results show that the correlation coefficients between
ICRG95 and WCR96 (0.80) and between WCR96 and WGI96 (0.82)
are higher than the correlation between ICRG95 and WGI96 (0.56).
The high correlation between WCR96 and ICRG95 can be attributed
to the fact that both indexes focused on firms or businesses engaged
in foreign activities. Similarly, the correlation between WCR96 and
WGI96 is high possibly because these indexes represent internal view-
points about corruption. In contrast, the correlation coefficient between
WGI96 and ICRG95 is only 0.56. According to the author, one plau-
sible reason for this low correlation is that the ICRG95 corruption
indexes include foreign firms with external viewpoints about corrup-
tion, while WGI96 focuses on internal viewpoints and local business
firms. However, our above comparison of the ICRG and WGI for the
year 2010 shows that the distribution of countries across quartiles based
on the WGI is very similar to the ICRG-based distribution. This is
not in line with the author’s explanation and questions the consistency
across classifications over time. The subsequent analysis in the paper
examines the correlation of each index over time but not the change in
the correlation between indexes over time.
To examine whether a given index ranks countries consistently over
time, rank correlation coefficients of various corruption indexes from
the same sources but for different time periods are calculated. It appears
that the ICRG, WCR, and TI indexes are highly correlated between any
two consecutive surveys. Although the value of the correlation coeffi-
cient decreases as the time span between the two indexes expands, cor-
ruption rankings seem persistent over time. For instance, the minimum
value of the correlation coefficient between ICRG82 and ICRG95 is
0.68, which is high.
Turning to regression analyses, the dependent variables, i.e., cor-
ruption indexes, are taken from TI (1996–1998), the ICRG (1995),
the WCR (1996), and WGI (1996). The set of explanatory variables
includes an index of bureaucratic competition, newspaper circulation,
urbanization, average years of schooling, an index of political liberty, the
2  Measurement Issues    
53

share of government consumption in GDP, and an index of government


regulation. The index of regulation is a sum of seven indexes assessing:
(i) regulations for starting a business and new operations, (ii) price con-
trols, (iii) regulations on foreign trade, (iv) labor regulations, (v) foreign
currency regulations, (vi) tax regulations, and (vii) safety or environ-
mental regulations. A separate estimation on the same set of explana-
tory variables is conducted for each index/year. However, the regression
results must be considered with caution because these results may be
influenced by the small sample size. There are only 20 countries due to
data availability.
The regressions lead to several interesting results. First, in all regres-
sions, the independent variables explain more than 50% of variations
in corruption. Second, with one exception, the relationship between
the independent variables and the corruption index is consistent across
all sources. Third, the coefficients of the measure of government regu-
lations, bureaucratic competition, average years of schooling, and the
index of political liberty have the expected signs in all cases, while the
coefficients of urbanization and government size have the wrong signs
in all cases. Overall, the various perception indicators are very similar.

3 Perception Versus Experience


3.1 Reasons for the Divergence

An important line of criticism levelled at all corruption indicators con-


cerns the distinction between measures based on perception of corrup-
tion and those based on experience of corruption. This matters because
perceptions do not measure corruption itself but only opinions about
its incidence. Subjective assessments of corruption may be critically
influenced by other factors such as level of development or religion.
Moreover, there is a risk that subjective measures of corruption may
be biased through a band effect, which relates to the fact that respond-
ents’ perceptions tend to follow the common perceptions of corrup-
tion in a given country. It is also likely that one element contributing
54    
K. Sekkat

to perceptions of corruption in different countries is the previous rank-


ing, thus introducing a certain endogeneity and persistence to the index
(Andersson and Heywood 2009). The resulting discrepancy between
perception and experience is especially important because the “distance”
between opinions and experiences varies haphazardly from country to
country (Weber 2007, p. 6). This makes cross-country comparisons very
hazardous.
In response to these critics, it can be argued that even biased percep-
tion is a relevant variable for investor decisions and government reform
efforts. Moreover, measures based on experiences such as convictions
might also be biased because gathering evidence is not easy, with the
result that a number of corrupt transactions escape justice. Also, in a
non-democratic regime, many allegations and convictions of corruption
might be motivated by a desire to eliminate opposing voices. Likewise,
basing the measure of corruption on experience is not necessarily the
best solution because the respondent might, for various reasons, over- or
under-report, for instance to avoid reprisals.
It is fair to acknowledge that a perfect measure of corruption does
not exist because, as with many illegal activities, the phenomenon is
non-observable. However, this does not mean that available measures of
corruption are not valuable. Given their importance both for investors
and for countries seeking to improve the quality of their governance,
continuing to improve the accuracy and transparency of the existing
indicators seems to be a promising way forward. However, as recom-
mended by Razafindrakoto and Roubaud (2010), the process of con-
structing indicators should make a clear separation between perception
and experience. The perception and reality of a phenomenon are two
distinct components, interlinked in a complex manner, and as such
interactions between them should be treated with caution. For instance,
perceptions can influence behavior in significant ways: If we believe
that all around us people are engaging in corrupt behavior, that may
make us more likely to adopt such practices ourselves. According to
Razafindrakoto and Roubaud (2010), sources based on objective meas-
urements should be excluded from the construction of global percep-
tion indicators. However, objective indicators based on real experiences
2  Measurement Issues    
55

of the phenomenon, and not just on the idea formed of it, should be
developed in parallel.

3.2 Evidence of Divergence

Razafindrakoto and Roubaud (2010) conducted an informal com-


parison of victimization—and perception-based measures of corrup-
tion. Victimization is measured based on International Crime Victims
Surveys (ICVS). First implemented in 1987, the ICVS include 55
countries, with samples of between 1000 and 2000 respondents per
country. In 1996, a question on bribe victimization was included in the
surveys. The question mainly concerns petty corruption and focuses on
the experience of having been asked to pay a bribe or having observed
a bribe being paid. It covers bribes to police and other public officials
in the workplace, courts, schools, and public health/hospital systems.
A similar question is asked about the perception of corruption in the
same institutions.
The results show that increases in corruption victimization go with
significant increases in the perception of corruption. On average, how-
ever, 60–70% of respondents do not have any direct personal cor-
ruption experiences within the 12 months prior to the survey, which
suggests that this finding should not be overstated. Respondents who
have not been personally affected by corruption in the year prior to the
survey generally view corruption as being pervasive in their countries.
Moreover, except in the case of Paraguay, the experience of respond-
ents who had been victimized two or more times in the previous year
increases the level of perception by ten points on a 100-point scale,
which is small. In sum, estimations of corruption on the basis of per-
ception do not fit with experience.
Dilyan and Ujhelyi (2014) examine a similar question (deviations
of perceptions from experience) by regressing the corruption percep-
tion indexes on measures of experience of corruption and other coun-
try characteristics. To measure experience of corruption, the study
used two sources. The first source is the 1996 and 2000 rounds of the
International Crime Victims Survey (ICVS) administered in a total of
56    
K. Sekkat

58 countries. The second is the World Business Environment Survey


carried out by the WB and the EBRD in 1999–2000. The latter focuses
on firms’ experience of corruption. Regarding perception, the three
most widely used cross-country indexes are used. These are the WGI
Control of Corruption Index, the CPI, and the ICRG corruption index.
Control variables include dummies for British legal origin and for coun-
tries that were never colonized, the fraction of Protestants in the popu-
lation, an ethnic fractionalization index, and a democracy index.
Overall, the results indicate a disconnection between perception and
experience. A country level of corruption perception is determined
mainly by economic, cultural, and institutional factors rather than cor-
ruption experience. GDP, Protestantism, a democratic past and a com-
mon law system reduce perceived corruption, while natural resource
endowments increase it. Moreover, perceptions exhibit diminishing sensi-
tivity to experience. Once control variables are added, the point estimate
of the effect of experience drops dramatically. In the most extensive spec-
ification, experience has a positive but insignificant effect on perceptions.
When significant, the effect of experience is not always robust to outliers.
Looking at the effect of different types of corruption experience
(police, workplace, etc.), it appears that perception indexes are biased
measures of a specific type of corruption experience. The results also
show that the relationship between perception and corruption is non-
linear and depends on the level of experience and on the population.
Moreover, the findings also suggest the presence of psychological biases
in forming perceptions. More educated respondents report more wide-
spread corruption for a given level of experience. Age has a nonlinear
impact on perceptions, with a positive effect for younger people that
steadily declines and becomes negative around the age of 50. Finally,
higher income has a significant positive impact on perceived corruption,
while individuals from larger cities perceive lower corruption.
Razafindrakoto and Roubaud (2010) commissioned two types of
surveys, which were conducted simultaneously in eight African coun-
tries, including Benin, Burkina Faso, Côte d’Ivoire, Madagascar, Mali,
Niger, Senegal, and Togo, from 2001 to 2003. The objective was to
examine the issue of perception versus experience pertaining to corrup-
tion. The first type of survey covered a sample of over 35,000 residents
2  Measurement Issues    
57

and took an objective measure of the frequency and characteristics of


petty bureaucratic corruption. The second type, called a mirror survey,
reported the opinions of 350 experts on the same subjects in the same
countries. The surveys also collected information on subjects including
poverty, governance and democracy.
In the first type of survey, respondents were asked whether they had
been personally affected by corruption in the year preceding the survey
and, if so, on what occasion (type of transaction and service concerned)
and the total sum paid over the year. Corruption was defined as an
illicit payment (in money or in kind) to a government official. The mir-
ror surveys involved experts from the South and the North, who were
asked two sets of questions. The first set concerned the expert’s own
opinion on certain governance issues. The second set focused on what
the experts thought interviewed residents answered on average.
Comparing the two types of surveys showed that experts systemati-
cally overestimated the level of corruption suffered by citizens. While on
average across countries 13% of the population said that they had been
direct victims of corruption, the experts estimated this rate at 52%, i.e.,
a ratio of one to four. The ratio of overestimation varied from 2.5 in
Burkina Faso to over 6 in Benin, Niger and Togo. Moreover, there was
no correlation between the measure in the mirror survey and the one
based on the population’s experience. The correlation coefficient was
actually negative (−0.13), although nonsignificant.
Interestingly, the mirror survey findings are correlated with the
indicators published in the international databases. The Control of
Corruption Index (CCI) in 2002 has a correlation coefficient of around
0.67 with the level of corruption found by the mirror survey. In con-
trast, the correlation between the actual rate of corruption and the CCI
is not significant. Expert perceptions appear to be highly associated with
the perception indicators published in the international databases, while
actual experiences are not.
The analysis then turns to determining the explanatory factors for
the expert opinions to understand the disconnection between reality
and experience. Using the individual mirror survey data, a first model
explains the experts’ opinion in terms of the actual extent of corrup-
tion and a number of variables representing the experts’ origins, gender,
58    
K. Sekkat

claims to know the country well and claims to know the subject well.
The second model is similar to the first except that the actual extent of
corruption is replaced by the CCI.
The regressions confirm that expert assessments of the extent of cor-
ruption do not tie in with the actual level of corruption. However, they
are significantly linked with the CCI. Two factors could be put forward
to explain this link. Either the experts (or some of them) know of the
CCI and are directly influenced by it, or expert opinions are condi-
tioned by a common core of factors (e.g., the country’s overall image in
terms of the quality of democracy and economic governance).
Adding other explanatory variables, the authors find evidence of ide-
ological biases too: the experts most in favor of free-market principles
or who consider that the country has not sufficiently adopted its pre-
cepts are more often wrong and tend to unfairly penalize that country.
Finally, the experts appear to base their judgments on a consistent, but
erroneous, implicit cultural model of the way in which Africa operates.
They tend to hugely overestimate the population’s level of tolerance of
corrupt practices and underestimate the importance the population
attaches to matters of good governance
Olken (2009) complements the preceding analysis by focusing on
another continent. The paper compares Indonesian villagers’ reported
perceptions of corruption in a road-building project in their village with
a more objective measure of missing expenditures. The study covers 477
villages in the two most populous provinces of Indonesia: East Java and
Central Java. The data were collected between September 2003 and
August 2004. The objective measure of corruption is constructed as fol-
lows. A team of engineers and surveyors excavated, after the roads were
completed, core samples in each road to estimate the quantity of mate-
rials used, surveyed local suppliers to estimate prices, and interviewed
villagers to determine the wages paid on the project. These data were
used to construct an estimate of the actual cost of each road. This esti-
mate was compared to what the village reported it spent on the project.
The difference between the two amounts is used as a measure of actual
corruption. To obtain data on villagers’ perceptions of corruption, a
household survey was conducted asking villagers about the likelihood of
corruption in the road project.
2  Measurement Issues    
59

Using an ordered probit model, the respondents’ answers to the ques-


tion about perceptions of corruption in the road project are explained
in terms of the measure of actual corruption and a set of dummies for
the household sampling methods, the type of questionnaire distributed,
and the experimental treatments. The results show that while villagers’
reported perceptions of the likelihood of corruption are correlated with
actual corruption, the sensitivity of perceptions to actual corruption is
low. Increasing the actual corruption measure by 10% is associated with
just a 0.8% increase in the probability of a villager believing that there is
any corruption in the project. However, residents are not able to distin-
guish between general levels of corruption in the village and corruption
in the particular road project. The inability of villagers to detect corrup-
tion in a specific road project is in line with the argument that officials
are strategic in how they hide corruption. Monitoring the construction
of a specific road project requires specialist auditors who can detect mul-
tiple types and complex ways of cheating and corruption. It also appears
that reported perceptions are biased. Individual characteristics such as
education and gender are systematically correlated with reported per-
ceptions of corruption in the road project. Moreover, village characteris-
tics also bias perceptions. Ethnic heterogeneity is associated with higher
levels of reported corruption perceptions while increased levels of par-
ticipation in social activities are associated with lower levels of reported
corruption perceptions. Interestingly, ethnic heterogeneity is associated
with lower levels of actual corruption while participation in social activ-
ities is not correlated with actual corruption. Echoing Bertrand and
Mullainathan (2001), these last findings suggest that perceptions cannot
reasonably be used as dependent variables in empirical analyses.

4 Persistence of Corruption
We documented in Chapter 1 the fact that corruption is perva-
sive throughout the world. In one form or another, and to a lesser or
greater extent, it exists in all societies, at all stages of development and
in all types of activities. This is the reason why the fight against corrup-
tion ranks so highly on the agendas of governments and international
60    
K. Sekkat

organizations. Another aspect of corruption which motivates further


concerns about the phenomenon is its apparent persistence (Seldadyo
and De Haan 2011). Once entrenched, corruption seems difficult to
eliminate despite an understanding of its causes and consequences and
specific attention on the part of policymakers. Some countries appear
to get stuck in a bad equilibrium characterized by highly pervasive and
persistent corruption while others witness a persistently low prevalence
of corruption. These observations raise questions about the degree of
persistence of corruption and the reason for such persistence (Seldadyo
and De Haan 2011).
Apart from its scientific appeal, an understanding of the economic,
political, and historical factors underlying the persistence of corruption
is of practical importance since it concerns the capacity of countries to
improve their situation through well-designed institutional reforms. If
the persistence of corruption reflects a frozen phenomenon, some coun-
tries would be predestined to remain poor and corrupt. Attempts at
improving their situation would consequently prove futile. Even if cor-
ruption is not frozen but takes a very long time to change, governments
would have few incentives to enter into costly reforms to eradicate cor-
ruption. Rulers have a limited time horizon, and there is no reason to
expect them to implement policies that would produce effects after they
have left office, especially if those policies also result in short-term costs.
Moreover, uncertainty about the distribution of the gains and losses of
reforms may cause individuals to favor the status quo. Specifically, indi-
viduals who would support the reform ex post, that is, when its effects
have materialized, might oppose it ex ante in case they have to share its
cost. The degree of persistence of corruption or, alternatively, the length
of the period between the implementation of reforms and the materi-
alization of their impacts, affects the political sustainability of reforms
and the viability of the government that considers implementing them.
Finally, the persistence of corruption may reflect the coexistence around
the world of countries that are trapped in a bad equilibrium character-
ized by high pervasiveness of corruption alongside others with a per-
sistently low prevalence of corruption. This suggests the existence of
groups of countries featuring similar levels of prevalence within groups
and different levels of prevalence between groups, i.e., two or more
2  Measurement Issues    
61

economic equilibria around the world. This section deals with the issue
of corruption persistence. It will first present available evidence about
the phenomenon and then examine the reasons behind it.

4.1 Evidence of Persistence

As a first illustration of the possible persistence of corruption, Table 3


compares the change in rankings of a large number of countries
between two sufficiently distant points in time. The exercise is con-
ducted using the three widely used indexes of perception of corruption.
For each indicator and year, countries are classified into four quartiles.
We then compute the number of countries which have changed quar-
tile between the points in time for the same indicator. For instance, the
table shows that based on the CPI, eight countries (19% of the total
CPI sample) moved to a better quartile, that is, became “less corrupt”.
The results should, however, be taken only as indicative given the crit-
icisms discussed above and the fact that TI warns against year-to-year
comparisons of the CPI.
The table shows that the rankings of 75% of the countries in the CPI
did not change between 1995 and 2010. The percentages are 44% in
the ICRG sample and 61% in the WGI sample. Measured persistence
thus appears to be markedly highest with the CPI and lowest with the
ICRG.
Ahmad (2001) examines a similar question using the indicators of
corruption from the WCR for the years 1994–1996, TI for the years
1997–1998, and the ICRG for the years 1982–1995. The author cate-
gorizes countries into three groups: clean, partly corrupt, and corrupt.
The focus is on the changes in corruption rankings.

Table 3  Change in country ranking over time


CPI ICRG WGI
1995–2010 1995–2010 1996–2010
Better quartile 6 (15%) 36 (28%) 35 (19%)
No change 31 (75%) 57 (44%) 113 (61%)
Worse quartile 4 (10%) 35 (27%) 36 (20%)
Total 41 (100%) 128 (100%) 184 (100%)
62    
K. Sekkat

The results based on the WCR show that only eight countries (18%
of the total WCR sample) out of 43 moved categories. Five countries
improved their rankings while three did worse. Using the CPI, only
four (8%) countries out of 52 changed categories. Three improved and
one went down. Finally, using the ICRG, 34 (39%) countries out of 87
changed categories (27 improved and seven deteriorated). These results
are not very different from the ones in Table 3.
The above illustrations suggest that there is little change in coun-
tries’ rankings across quartiles. This points to the existence of at least
two equilibria: one with high pervasiveness of corruption and another
with low pervasiveness of corruption. In statistical terms, this pattern is
manifested in the fact that the distribution of corruption across coun-
tries is multimodal. Herzfeld and Weiss (2007) investigate the existence
of such multimodal distribution. They used Kernel density estimation
techniques to analyze the cross-country distribution of corruption.
Looking at the change in the distribution over time makes it possi-
ble to examine whether a particular distribution with, say, two groups
of countries (bimodal: e.g., corrupt and clean countries) is gradually
changing toward one with more or fewer classes of countries (unimodal
distribution). The study uses data on corruption spanning the period
from the mid-1990s to the early 2000s and drawn from four different
sources: The Institute of Management Development (IMD), the World
Economic Forum (WEF), the World Bank Control of Corruption
Index (CCI), and Transparency International (CPI).
The unimodality hypothesis is rejected for all indicators except the
CCI. This suggests the existence of at least two groups of corrupt coun-
tries with different levels of prevalence of corruption. The change in the
distributions over time suggests high persistence. Countries initially
classified within the high corruption group are still classified within
the same group at the end of the observation period. It seems that sub-
stantial changes in the economic, political, and cultural environment
of countries in the “corruption club” are required before a significant
decline in corruption can be expected. In sum, the estimated densities
exhibit twin peaks, which gives empirical support to models predicting
multiple equilibria.
2  Measurement Issues    
63

While the previous studies support the hypothesis of a high per-


sistence of corruption, Seldadyo and De Haan (2011) argue that this
persistence might be purely because of the short-time horizon consid-
ered and that over a longer time horizon the hypothesis of corruption
persistence would no longer hold. Using ICRG data for the period
1984–2008 and 101 countries, the authors apply different methodo-
logical approaches to investigate the issue of corruption persistence. The
approaches consist of correlation, tests of convergence, panel unit root
tests, regressions, and nonparametric tests.
A first look at the data suggests that during the first half of the obser-
vation period, 40% of the countries in the sample reduced their level
of corruption while another 40% had a stable level of corruption. In
contrast, during the second half of the period approximately 75% of the
countries (including various OECD countries) saw their level of corrup-
tion increase while only 15% of the countries decreased their level of
corruption.
The computed correlation between the level of corruption in 1984
and corruption in subsequent years is high but declining as the time
lag increases. Over an interval of lags from 1 to 15 years, the correla-
tion coefficients gradually decrease from more than 0.98 to 0.61. For
higher lags, the correlation continues decreasing. Likewise, the R2 of
regressions of a given year level of corruption on a constant and the
level in 2004 decreases from more than 0.96 to only 0.36 as the time
lag increases. Moreover, different tests of convergence among corrup-
tion groups, that is, whether corrupt countries improve their score more
than clean countries, do not reject the convergence hypothesis. Panel
unit root tests led to the same conclusion. Finally, an analysis of the
change in the distribution of the level of corruption over time shows
it to be marked by a slow shift in modality of the distribution from
bimodal to unimodal.
All the results in Seldadyo and De Haan (2011) support a long-term
change in corruption and reject the persistence hypothesis, which con-
tradicts the findings by Herzfeld and Weiss (2007). Comparing the two
papers, however, leads to skepticism about the robustness of the find-
ings of Seldadyo and De Haan (2011). Their analysis is based on only
one indicator of corruption, the ICRG, while the one by Herzfeld and
64    
K. Sekkat

Weiss (2007) is based on four different indexes (IMD, WEF, CCI, and
CPI), and the results seem robust across indexes. Moreover, the results
in Table 3, although indicative, suggest that the ICRG is the index
which exhibits the least persistence among the studied indexes. Finally,
from a policy point of view the “long term” (around 15 years) might be
too long for policymakers and citizens to benefit from anti-corruption
efforts which, as indicated above, would reduce government’s incentives
to enter into potentially costly reforms.

4.2 Explanations of Persistence: Conceptual


Discussion and Empirical Evidence

Although the available evidence seems mixed, our discussion suggests


that corruption is likely to be persistent. Understanding the reasons for
such persistence is of high importance to the fight against corruption.
Various explanations have been put forward and are comprehensively
discussed in Bardhan (1997). For instance, liberal economists point the
finger at the regulatory state, which creates opportunities for corruption
through its overburdened and complex system of rules, permits, and
licenses. Accordingly, corruption will persist as long as such a system
exists and the difference in the prevalence of corruption across coun-
tries will reflect the difference in regulatory systems. Sociologists, mean-
while, emphasize the difference in social norms. An act which is seen
as corruption in one society may well be considered as socially normal
in another. Corruption persistence and the difference across countries
regarding the prevalence of corruption are argued to be merely manifes-
tations of the difference in norms. Finally, the explanations provided by
economists largely rely in one way or another on the systemic dimen-
sion of corruption. Equilibria with high persistence of corruption and
others with low persistence are both possible depending on whether the
expected gain from corruption is reliant on the number of other people
expected to be corrupt.
Various models have been proposed to rigorously derive equilib-
ria with persistent corruption. Cadot (1987) proposes a model of cor-
rupt hierarchy where both the ordinary civil servant and the superior
2  Measurement Issues    
65

officer are corrupt. With a corrupt superior officer, the probability that
the ordinary civil servant will be sacked diminishes since corruption at
one level feeds on the others. A similar idea can be found in Hillman
and Katz (1987), who consider a hierarchical structure where an ordi-
nary customs official is obliged to pay a part of his take of bribes to
a superior. Tirole (1996) argues that the incentive for an individual to
be corrupt depends on the collective reputation of the group to which
he/she belongs. The existence of a large number of corrupt individuals
impacts the collective reputation of the group and makes it beneficial
for an individual to be corrupt too. In contrast, when the group as a
whole has a good reputation, it pays for each agent to be honest as well.
Lui (1986) focuses on the costs of auditing and shows that when cor-
ruption becomes more widespread in an economy, it is harder to audit
corrupt officials effectively. Hence, the economy will remain highly cor-
rupt. Conversely, if most officials do not accept bribes, it will be easier
to discover those who do, and the corruption equilibrium will be lower
(Herzfeld and Weiss 2007).
Other studies put forward explanations not linked to the systemic
dimension of corruption. Acemoglu (1995) considers individual choices
between two activities: productive entrepreneurship and unproductive
rent-seeking (corruption). A higher proportion of corrupt individu-
als reduces the return both to entrepreneurship and corruption. If the
relative return to entrepreneurship falls faster, a multiplicity of equi-
libria may arise: As the number of individuals choosing to be corrupt
increases (declines), the relative returns to entrepreneurship will decline
(increase) and corruption becomes even more (less) attractive. In a sim-
ilar vein, Damania et al. (2005) examine cases where a firm seeking to
evade regulations bribes officials and politicians to encourage them to
resist legal reforms which help to fight corruption. The authors show
that political instability can weaken the institutions that are necessary to
monitor and enforce compliance. Corruption therefore becomes more
pervasive. Jain (2001) focuses on the transition from a low corruption
regime to a high corruption regime. Consider a country with an inef-
fective legal system and which is affected by an unexpected external
shock that increases corruption. The political elite, finding the increased
income from corruption irresistible, will attempt to further undermine
66    
K. Sekkat

the effectiveness of the legal and judicial systems through reduced


resources. Such a decrease in resources will make it difficult for the legal
system to combat corruption, thus enabling corruption to spread even
more. Blackburn et al. (2006) also examine the transition across regimes
(from a low to high corruption regime) but focus on the level of eco-
nomic development. They construct a dynamic general equilibrium
model of growth where the level of economic development and bureau-
cratic corruption are determined jointly. The incentives for corruption
depend on aggregate economic activity, which, in turn, depends on the
incidence of corruption. The model produces multiple development
regimes, transition between which may or may not occur.
Herzfeld and Weiss (2003) test for the role of the potential bidirec-
tional relationship between corruption and the legal system as a driver
of corruption persistence, a hypothesis suggested by Jain (2001). The
exercise consists in estimating a two-equation system where corruption
and legal effectiveness influence each other, using 2SLS to take account
of endogeneity. Three different measures of corruption are used: the
ICRG, the CPI, and data published by the Institute for Management
Development (IMD) in the World Competitiveness Yearbook. The legal
effectiveness measure is the indicator of law and order taken also from
the ICRG. Control variables include gross domestic product, the index
of political rights from Freedom House, the share of imports in GDP,
the share of Protestants in the total population and dummies for a com-
mon law system, and ethnolinguistic division.
The estimates of the different econometric models lead to unambig-
uous results. Legal effectiveness has a highly significant and negative
impact on corruption. Conversely, corruption has a highly significant
impact on legal effectiveness, suggesting that a higher level of corrup-
tion significantly reduces the acceptance of established institutions and
undermines the quality of the judicial system. This is in accordance with
the hypothesis by Jain (2001). Simulation experiments based on the
econometric results indicate that a 10% exogenous increase in corrup-
tion combined with a 10% reduction in legal effectiveness will lead to a
final effect of a 13% increase in corruption and a 21% decline in legal
effectiveness.
2  Measurement Issues    
67

Damania et al. (2005) draw three testable hypotheses from the the-
oretical model discussed above: (i) political instability reduces judicial
efficiency, (ii) political instability indirectly increases corruption via its
impact on judicial efficiency, and (iii) political instability reduces the
level of compliance with regulations. These hypotheses are tested in the
case of environmental compliance. The empirical exercise estimates a
system of four equations on a cross-section sample of around 80 coun-
tries in the 1990s. Given the simultaneity of political stability, judicial
efficiency, corruption, and compliance variables, an instrumental vari-
able (2SLS) approach is used to estimate the equations. The dependent
variables are political stability (from the WGI), judicial efficiency (from
the WGI), corruption (from TI and WGI), and compliance (from the
WEF). Each dependent variable also enters as an explanatory variable
in the other equations. Control variables include GDP, democracy, the
degree of racial tension, ethnolinguistic fractionalization, history of
wars and civil wars, a dummy for the prevailing legal system, and trade
openness.
The empirical results provide strong support for the null hypothe-
sis. Political instability appears to create institutional structures under
which corruption is more pervasive and harder to eradicate. Political
instability thus creates an environment in which corruption persists.
Political instability also leads to lower levels of compliance with existing
regulations due to its effect on judicial efficiency and corruption.

5 Conclusion
Assessing the magnitude of corruption was long handicapped by the
lack of systematic data collection. Since the 1980s, various national and
international institutions have been filling this gap. Three approaches
are taken to the assessment of corruption. One is based on the percep-
tion of experts, citizens, or business of the prevalence of corruption in
a country or a sector. The second relies on actual acts of corruption and
draws either on justice records or on individual experiences. The last
approach uses Public Expenditure Tracking Surveys and Quantitative
68    
K. Sekkat

Service Delivery Surveys. The results of the various assessment


approaches lead, however, to different groupings of countries.
Almost all the indicators used to assess the extent of corruption show
a high degree of persistence. The explanations provided by economists
largely rely in one way or another on the systemic dimension of corrup-
tion. Equilibria with high persistence of corruption and others with low
persistence are both possible depending on whether the expected gain
from corruption is reliant on the number of other people expected to be
corrupt.

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3
Causes

Examining possible cures for corruption implies knowing its causes.


These causes explain why some people or countries are more corrupt
than others. Based on the literature, the causes of corruption can be
related to the geography or history of a country, its political and insti-
tutional systems, the characteristics of its population and its economic
structure, and the corruption system itself. Some geographic and his-
torical variables, such as natural resources’ abundance, corruption
among neighbors, and colonial history, can significantly affect the prev-
alence of corruption. Democratic institutions limit corruption through
increased competition for political mandates and possible voting out
of corrupt leaders. Highly regulated economies are prone to the devel-
opment of corruption because of the rent that can be secured through
both the setting and implementation of rules. Population characteris-
tics such as generalized trust, religion, and acceptance of hierarchy
are often associated with a low prevalence of corruption. Finally, cor-
ruption can feed itself through its systemic nature. If a large number
of officials of a department are corrupt, it becomes almost impossible
for a single agent to remain honest. He/she runs the risk of facing the
hostility of colleagues or even superiors by being seen as an obstacle to

© The Author(s) 2018 71


K. Sekkat, Is Corruption Curable?, https://doi.org/10.1007/978-3-319-98518-3_3
72    
K. Sekkat

“doing business”. Furthermore, the delivery of, say, a license may need
the approval of several civil servants. While one of them might speed up
the process, others might slow it down unless they receive bribes.

1 Conceptual Analysis
This section discusses how the various characteristics of citizens and
their environment can cause corruption (Lambsdorff 2006). It con-
siders, in turn, the features of a country (geography and history),
institutions (democracy, functioning of democracy, decentralization),
society and citizens (culture, values, and gender), the economy (regula-
tory quality, economic competition, and economic development), and
the corruption system itself (systemic corruption).

1.1 Characteristics of the Country: Geography


and History

The geography of a country has important implications for the emer-


gence and persistence of corrupt practices. On the one hand, countries
covering a vast area might face more corruption because of the diffi-
culty in implementing effective monitoring of public officials (poten-
tial bribe-takers), especially in isolated locations. On the other hand,
employees in small areas face the threat of exposure and stigmatization,
which might act as a deterrent to corruption. Furthermore, there might
be a greater chance of corrupt practices being caught or exposed in areas
with a high population density.
Countries that are rich in certain natural resources are typical can-
didates for rent-seeking activities. Large endowments of valuable raw
materials (fuels, minerals, and metals) offer greater potential gain to
officials who allocate rights to exploit such resources (Kolstad and
Søreide 2009). Those who seek such rights may devote to them large
amounts of time, skill, and money that could otherwise be used in pro-
ductive activities. In many resource-rich economies, skilled agents typ-
ically seek positions as oil bureaucrats or lobbyists rather than starting
3 Causes    
73

a business in another field. In fact, rent-seeking consists in splitting


up an existing cake instead of making it bigger. Each agent ignores the
fact that a larger share for him/her means a reduced share for others,
which is socially sub-optimal. Another problem is that abundant natu-
ral resources create incentives for rulers to pay off political supporters.
This is a typical means used by many autocratic rulers to stay in power
while continuing economic policies that are detrimental to their coun-
try (or no economic policy at all). Moreover, such public funds could
be spent in more development-friendly ways. Finally, and very impor-
tantly, rent-seeking may be the subject of violent confrontations, which
is destructive to fragile states.
History, another important country characteristic, can have signif-
icant implications for corruption. History shapes a country’s cultural
values (including religion), geography, and legal system. Cultural val-
ues make the characterization of an activity as corrupt different across
countries. Bribe-giving and bribe-taking might, in some circumstances,
be socially acceptable in one country and unacceptable in another coun-
try under similar circumstances. The exposure of corrupt acts depends
on the likelihood of being caught, which in turn depends on the legal
framework of the country. This framework is in general inherited from
former colonial powers, although it may also include specific religious
features and customs. Thus, countries with different colonial traditions
can be expected to have different legal systems. Common wisdom is
that former British colonies tend to be less corrupt. One possible expla-
nation is that British rules respect the rule of law and procedural propri-
ety. According to Treisman (2000), the reason for this is that common
law systems (found mostly in Britain and its former colonies) devel-
oped to defend parliament and property owners against attempts by the
sovereign to regulate and expropriate them. The greater protections of
property against the state embodied in common law systems improve
various aspects of government performance, including reducing cor-
ruption. The willingness of judges to follow procedures even when the
results threaten senior figures clearly increases the chance that official
corruption will be exposed. In contrast, civil law systems (found mostly
in continental Europe and its former colonies), which developed more
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as an instrument used by the sovereign to build the state and control


economic life, are less conducive to such behavior.

1.2 Characteristics of Institutions: Democracy,


Functioning of Democracy, and Decentralization

Although corruption can take place in the private sector (see Chapter
1), it is traditionally associated with the public sector and the control
that some officials have over certain decisions. Without checks, the offi-
cial can abuse this control. Such checks depend on the political regime
of the country and especially on the degree of political competition.
In an autocratic regime, a large part of public life is under the control
of the leader(s) and high-ranking officials who are subject to very few
checks. Under such a regime, the tastes and wishes of a small coalition
(i.e., the leaders and their companions) determine the conduct of public
affairs with the aim of satisfying the coalition’s own interests. In con-
trast, rulers in a democracy are constrained by the ability of citizens
to vote and participate in setting the rules governing their lives. The
existence of competition for power between different political groups
makes the position of rulers contestable. Rulers can be “dismissed”
and replaced by another political group. Such a threat means that a
democratic ruler will seek broader public support than an autocratic
ruler will through, among other things, well-functioning institutions.
Accordingly, democracy is likely to limit corruption through increased
competition for political mandates. Moreover, the deeper democratic
practices are rooted in a country’s tradition, the more effective the
impact of political competition will be on reducing corruption.
While democracy can reduce corruption, there are many cases of
corrupt practices in democracies. Democratic regimes can exhibit a
non-negligible degree of corruption because election campaigns require
funding, which makes political parties and candidates vulnerable to
pressure from funders. Moreover, institutions in charge of enforcing
government accountability are often appointed or funded by the gov-
ernment itself. This can reduce their incentive and capacity to expose
3 Causes    
75

government corruption. Other features of democracies can make some


of them more corrupt than others. These include electoral rules and the
design of democratic institutions such as majority or proportional sys-
tems, presidentialism, parliamentarism, federalism, and bicameralism.
Decentralization is another feature of democratic systems which has
generated a rich discussion in relation to corruption. Briefly defined,
decentralization refers to the transfer of certain strands of central gov-
ernment competencies to local or regional public bodies. It can be polit-
ical, fiscal, or administrative. The legal framework of decentralization
does not assign it a specific task with respect to corruption. However,
decentralization can lead to reduced corruption by bringing government
closer to the people. It can also result in local government capture by
strong local players, which increases corruption. For this reason, the
change in the social and political environment that comes with decen-
tralization is expected to affect corrupt behaviors. The literature distin-
guishes two types of possible effects of decentralization on corruption.
One concerns the impact of decentralization on accountability and
democracy. The other is based on its effect in terms of interjurisdictional
competition.
Decentralization brings decision-makers closer to the real situation in
the territory and can lead to more informed decisions concerning taxa-
tion and expenditure. It also makes citizens better informed about local
conditions. This allows them to better evaluate the performance of offi-
cials and to decide who to appoint or fire. However, decentralization
creates a risk of easy capture of local government by local elites.
Interjurisdictional competition refers to the risk that different local
governments may compete with one another to attract investment. In
theory, investors choose locations with disciplined local government
officials who care about establishing market-friendly local laws and
regulations and fighting bribery. However, too much competition for
capital can induce negative externalities across jurisdictions. A local
government may seek to attract investors away from other regions by
offering them opportunities to evade central government taxes and
regulations.
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1.3 Characteristics of the Society and Citizens:


Culture, Values, and Gender

Sociologists are especially interested in the cultural causes of corruption.


These causes are linked, inter alia, to religion, customs, and habits and
encompass different features, such as acceptance that power is distrib-
uted unequally among members of a group, intolerance of uncertainty
and ambiguity, the strength of ties between members of a group, mem-
bership of social networks or associations, levels of interpersonal trust,
and norms of mutual aid and reciprocity. These factors also contribute
to the formation of different sorts of social capital, which determine the
degree to which individuals favor collective actions. A group with high
social capital is likely to have effective civic institutions, to prosper and
to succeed in maintaining law and order.
Psychologists assert, however, that while a society’s cultural values can
have impacts on corruption, individual personality traits should also
be taken into account. These include extraversion, openness to experi-
ence, agreeableness, and conscientiousness. Research in psychology has
explored the relationship between these factors and counterproductive
work behaviors, including corruption, and has found strong relation-
ships between the two. Moreover, involvement in corrupt acts can also
be explained by rationalization tactics used by individuals committing
unethical or fraudulent acts. Rationalization is a set of mental strategies
that allow employees (and others around them) to view their corrupt
acts as acceptable.
Other studies have pointed to gender issues as a determinant of the
prevalence of corruption in a country (Lambsdorff 2006). Justification
is provided on two grounds. First, women as individuals are intrinsi-
cally less corrupt than men. Since this issue is beyond the scope of our
analysis, we will not elaborate further on it. Note, however, that casual
observations suggest that a better mix of sexes, as opposed to male dom-
inance, is associated with lower corruption. Second, corruption might
be related to the social evolution that goes with gender equality. Male-
dominated networks might encourage corruption when they are set
up to advance specific interests at the expense of the rest of the soci-
ety. Improved women’s rights might go with more transparency. This
3 Causes    
77

is because parliamentary debates involve both sexes and bureaucratic


decisions are communicated across sexual boundaries. Increased trans-
parency is key to the reduction of corruption. However, the opposite
direction of causality may also hold. A society with a lower prevalence
of corruption may impose more restrictions on male-dominated net-
works and provide women with legal recourse and improved access to
higher positions.

1.4 Characteristics of the Economy: Regulatory


Quality, Economic Competition, and Economic
Development

The state intervenes in a number of fields through regulation in order


to correct for market failures. These failures include abuse of dominant
position, limited technological spillover, information asymmetry, and
coordination among agents and other externalities. Externalities take
place when firms (or individuals) do not take account of the costs or
benefits their activities create for third parties. In these cases, the activ-
ities in question will be pursued either too intensely or insufficiently,
which is sub-optimal from the point of view of the society as a whole.
For instance, a manufacturing plant may discharge dangerous chemicals
into the air or water, causing harm to the neighborhood. To address this
risk, the government sets rules for emissions or imposes the use of spe-
cific technologies.
While there is a consensus on the view that regulation may help pro-
tect the “public interest”, there are cases where regulation may harm
such interest. These include situations of state capture. In such situa-
tions, regulation is issued in response to demand from interest groups
which seek to maximize the gains for their members at the expense
of the rest of the society. Regulation becomes a good whose alloca-
tion follows the laws of supply and demand, which opens the doors to
corruption.
The abuse of a dominant position results from weakness of compe-
tition on product markets. Theoretically, the effect of market compe-
tition on corruption is ambiguous (Diaby and Sylwester 2015). High
78    
K. Sekkat

competition among firms drives firm and industry profits to zero,


thereby reducing a firm’s ability to pay bribes. Less competition means
firms enjoy high rents. Thus, bureaucrats with control rights over these
firms (e.g., tax inspectors or regulators) will seek to get a part of the rent
for themselves through corruption. Taking a dynamic perspective, how-
ever, high competition could lead to more corruption and low competi-
tion to less corruption. Under high competition, firms could use bribes
to gain advantages over their competitors. Under low competition (i.e.,
high rents), the public could rewrite bureaucrats’ contracts and spend
resources to control them more effectively.
While it is well documented that corruption hampers economic
development (see the next chapter), economic development is also con-
sidered to reduce corruption. With a high level of development, more
transactions per unit of time occur, which increases the opportunity
cost of time and encourages citizens to request faster procedures. This
puts pressure on administrations to become more transparent and effi-
cient. With a low level of development, the level of production is low
and each transaction can take a lot of time. Furthermore, economic
development goes with high levels of human and social capital, both of
which act as deterrents to corruption. Finally, in some developing coun-
tries, bargaining is seen as an enjoyable way to use time and to distrib-
ute the gains from a transaction. Accordingly, the level of corruption
may depend on the level of income rather than causing it.

1.5 Characteristics of the Corruption System: Systemic


Corruption

There is a growing consensus among corruption specialists that a part of


the explanation for the failure of anti-corruption reforms in many coun-
tries is the systemic nature of the phenomenon. Many anti-corruption
reforms are based on the principal–agent model, which takes the exist-
ence of non-corruptible principles for granted. In reality, rather than
reporting and punishing corrupt behavior, political leaders, as well as
citizens, seem to at least passively maintain the corrupt system (Persson
et al. 2013). Corruption is thus more akin to a collective action
3 Causes    
79

problem. Within a corrupt administration, it is almost impossible for a


single official to remain honest. The official must not only renounce the
gain from corruption but also face hostility from colleagues because he/
she diverts citizens to his/her desk or is suspected of reporting misbe-
havior. Furthermore, the delivery of, say, a license may involve different
civil servants. While one of them might speed up the process, others
might slow it down unless they receive bribes. These factors facilitate the
emergence of a system of bribe-sharing that is very often organized by
the top level of the hierarchy, which is supposed to control corruption.
Those at the top may even exert pressure down the chain to make lower
levels participate in the corrupt system. Moreover, such a system attracts
a number of intermediaries who offer easier access to the bureaucracy in
exchange for payment. The better this corrupt system works, the greater
the incentive will be for officials and intermediaries to work together to
perpetuate the system and get the best out of it. These objectives can be
achieved by increasing the time and trouble imposed on citizens which,
in turn, creates more opportunities for corruption.
Besides inducing people to enter the corruption market, the factor
described above favors the persistence of corruption, which is another
reason to be concerned about the phenomenon. Observation shows that
once pervasive, corruption is difficult to eliminate despite an under-
standing of its causes and consequences and specific attention on the
part of policymakers. This causes some countries to get stuck in a bad
equilibrium characterized by highly pervasive and persistent corrup-
tion, while others experience a persistently low prevalence of corruption
(Seldadyo and De Haan 2011).

2 Empirical Evidence
We start this section by reviewing empirical studies that have examined
the contribution of each of the above-discussed causes to determining
the difference in corruption score across countries. We then turn to
studies dealing with specific groups of causes.
The set of possible causes considered by Treisman (2000) includes
whether the country has a British legal tradition, the share of
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K. Sekkat

Protestants in the population, the share of primary product exports


(including energy) in total exports, ethnolinguistic fractionalization, per
capita GDP, the number of years the country has been democratic over
the period 1950–1995, and whether the country has a federal or unitary
system, the share of imports in GDP, an indicator of state intervention
in the economy through regulations, government wages, and turnover
of power between parties. The sample consisted of between 52 and 84
countries and covered the period 1996–1998. The dependent varia-
bles are the indexes of perceived corruption published by Transparency
International and by Business International. To isolate causality from
correlation, the analysis started by running a series of nested regressions,
beginning with the most plausibly exogenous variables and progressively
including groups of variables according to how slowly or quickly they
are likely to change. This makes it possible to identify the additional
contribution of each factor.
The results show strong and robust support for the role of five causes.
First, countries with Protestant traditions and those with more devel-
oped economies have lower perceived corruption. Evidence in this
paper suggests that causation runs from economic development to
lower corruption as well as from corruption to slower development.
Second, countries with a history of British rule are less corrupt. Third,
federal states are more “corrupt” than unitary ones. Fourth, while the
current degree of democracy is not significant, a long period of expo-
sure to democracy is. Finally, openness to trade seems able to reduce
corruption.
Pellegrini and Gerlagh (2008) can be seen as a robustness check of
Treisman (2000). They address a similar question but use a larger num-
ber of countries (more than 100), a different index of corruption (WB
Control of Corruption Index), and a different year of observation
(2004). The set of possible causes is also large and includes the share
of Protestants in the population, ethnolinguistic fractionalization, the
share of fuels and minerals in exports, GDP per capita, state and local
government expenses divided by central government (decentralization),
the average (over the years 1994–2003) of the institutional democracy
scores from the Polity IV dataset, daily newspaper circulation per ten
persons, the share of imports in GDP, the percentage of veto players
3 Causes    
81

that changed every year (instability), the average government wage as a


percentage of GDP per capita, a dummy variable for former British col-
onies, a dummy variable for countries with the common law system in
their commercial code, and government intervention in the economy.
The last of these is a composite index based on government consump-
tion as a percentage of GDP, government ownership of businesses and
industries, the share of government revenues from state-owned enter-
prises, and economic output produced by the government.
The analysis does not show a consistent effect from the common law
system, a British colonial past, decentralization and ethnolinguistic frac-
tionalization. In contrast, the presence of Protestants in the population
is found to be associated with lower corruption. Richer countries are
also found to be less corrupt. A long exposure (30 years) to uninter-
rupted democracy is associated with lower corruption. Finally, political
instability tends to raise corruption, while the diffusion of newspapers is
associated with lower corruption levels.
Lippitt (2013) offers another robustness check of Treisman (2000).
The difference here is that the measure of corruption (the dependent
variable) is based on violations of the US Foreign Corrupt Practices Act
(FCPA). The anti-bribery provision (see Chapter 12 for more details) of
the act prohibits any direct or indirect payments or gifts to foreign offi-
cials with the aim of bypassing the rules for fair transactions. The study
uses data on FCPA violation frequency during the years 2000–2011,
which gives a total of 324 incidents of bribery. A violation frequency is
assigned to the country where the bribe payment occurred. If the pay-
ment occurred in a group of countries, a violation is assigned to each
of them. Specifically, if a single entity has been prosecuted for multiple
incidents of bribery occurring in different countries, then each of the
incidents of bribery is counted separately and assigned to the country
where it occurred. Prosecutions against individuals are not included,
and actions that were dismissed are omitted.
The incidence of FCPA violations in each country is explained in
terms of the share of fuel exports in total merchandise exports, the share
of manufacturing exports in merchandise exports, government expend-
iture as a percentage of GDP, agricultural raw material exports as a per-
centage of merchandise exports, indicators of the ease of doing business,
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K. Sekkat

initial (i.e. in 2000) democracy level, initial corruption score, initial


GDP per capita, initial level of US investment, corruption growth over
the observation period, and the number of years a country was in the
WTO.
The results show a positive and significant relationship between fuel
exports and the number of FCPA violations, which is consistent with
the “natural resource curse” literature. Government size is negatively
and significantly correlated with FCPA violation frequency. The finding
that countries with larger governments are less likely to be subject to
FCPA enforcement has two possible explanations. Larger governments
increase accountability, which deters corruption. Many developing
countries tend to have ill-functioning institutions and smaller govern-
ments, while developed countries, particularly in Europe, have large
governments and well-functioning institutions. Countries with larger
manufacturing sectors tend to have more FCPA violations. Finally, the
initial level of corruption is positively correlated with FCPA violations.
This, unsurprisingly, means that an established “tradition” of corruption
increases the number of FCPA violation and enforcement actions. The
variables for agricultural exports, business regulatory environment, ini-
tial democracy level, initial level of GDP per capita, initial level of US
foreign direct investment, and WTO membership were not significant.

2.1 Characteristics of the Country: Geography


and History

The analysis by Becker et al. (2016) focuses on the relationship between


history and corruption. The authors offer an interesting and relia-
ble approach using information going back to the Habsburg Empire.
In contrast to other empires in Eastern Europe, the Habsburg Empire
is historically known as multiethnic with a relatively well-functioning,
honest, and respected bureaucracy. Such well-respected administration
increased citizens’ trust in local public services and reduced corruption.
The authors argued that these cultural norms still explain the function-
ing of communities today.
3 Causes    
83

To test the validity of their expectation, the authors used the 2006
Life in Transition Survey (LiTS), which gives measures of trust and
corruption in 17 Eastern European countries. Drawing on a number
of historical sources, they coded the location of each observation in
the LiTS dataset according to its former affiliation with the Habsburg
Empire. They therefore worked out a specification which made it pos-
sible to compare individuals living in locations that used to be terri-
tory of the Habsburg Empire with those who did not. Both groups of
populations live in locations within 200 kilometers of the long-gone
Habsburg border. The border cuts straight through five countries today:
Montenegro, Poland, Romania, Serbia, and Ukraine.
The analysis suggests that the Habsburg Empire still exerts effects on
cultural norms and on interactions of citizens with their state institu-
tions today. Comparing individuals living on different sides of the bor-
der, those who live on former Habsburg territory have higher levels of
trust in courts and police. They are also less likely to pay bribes for these
local public services. It seems that the institutional heritage influences
not only preferences and unilateral decisions but also bilateral bargain-
ing situations in citizen–state interactions.
As explained in Sect. 1 of this chapter, among the geographic char-
acteristics of a country natural resource endowments have important
implications for corruption. Montinola and Jackman (2002) focus
on this aspect, considering two indicators of corruption: Business
International covering the period 1980–1983 and 66 countries, and
Transparency International covering the period 1988–1992 and 51
countries. The indicators are explained in terms of a dummy varia-
ble that equals 1 for OPEC states and 0 otherwise. Control variables
include freedom of group opposition, political rights, effectiveness of
the legislative body, public sector size (government share of GDP), real
GDP per capita, and region dummies.
The results show that OPEC membership is systematically and pos-
itively associated with corruption. Government size is negatively asso-
ciated with corruption, although the effect declines with increasing
government size. Finally, economic development also reduces corrup-
tion, but the magnitude of this effect declines with increasing per capita
GDP.
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K. Sekkat

Goel and Nelson (2010), using data for about 100 countries over
three time periods (1995–1997, 1998–2000, and 2001–2003), exam-
ine the influence of both history and geography on corruption. The
dependent variable is the TI corruption index. It is explained in terms
of five measures of a country’s geography (land area, degree of urbani-
zation, extent of digital networking, natural resource endowments, and
first-order administrative divisions) and two history dummies to distin-
guish between newly independent or transition nations and nations that
have been independent for a substantial period of time (a first dummy
which equals 1 if the country became independent after 1950 and 0
otherwise, and a second dummy which equals 1 if the country became
independent before 1900 and 0 otherwise). Control variables include
indicators of government intervention. The latter consist of general gov-
ernment consumption as a percentage of GDP and a synthetic index for
other government interventions in the economy (top marginal tax rates
for individuals and corporations, monetary policy, the degree of regula-
tion on foreign investment, wage, and price controls).
The findings are that countries with higher degrees of urbanization
have lower corruption. Corrupt practices might be easier to detect and
stigmatize in areas with high population density, which might act as a
deterrent to temptation. The other geographic indicators do not sig-
nificantly impact the level of corruption. Both history dummies are
negatively associated with corruption, which is surprising. Both newly
independent countries and very old independent countries (independ-
ent before 1900) are more corrupt than the rest. According to the
authors, a possible explanation is that young countries may have greater
corruption due to relatively underdeveloped institutions. As countries
become older, institutions tend to develop well and corruption tends to
decrease, but government efforts to combat corruption might be coun-
tered over time.
Arezki and Brückner (2011) rely on a more precise measure of oil
rent to investigate the relationship between resource endowment and
corruption. Using a panel of 30 oil-exporting countries over the period
1992–2005, they estimate a model which explains a country’s yearly
change in corruption score in terms of the yearly change in the coun-
try’s oil rents and different fixed effects. The measure of corruption is
3 Causes    
85

based on the ICRG index, and the proxy for oil rents is the oil export
unit value. Control variables are the first difference in non-oil GDP, the
first difference in oil production and lagged corruption. The authors
find that an increase in oil rents significantly increases corruption. The
point estimate of the coefficient of oil rents is 0.460 and is statistically
significant at the 5% level. This point estimate implies that a one stand-
ard deviation increase in the unit export value of oil increases corrup-
tion by about 0.32 standard deviations.
Vicente (2010) uses an event to study the relationship between nat-
ural resource endowment and corruption. The event is the oil discov-
ery announcements in Sao Tome and Principe (STP) which occurred in
the late nineties. A comparison is made between STP and Cape Verde
(CV). Crucially, oil has never been found in CV and is said to be very
unlikely to exist there or to have viable exploration in this territory.
CV and STP are remarkably similar in different respects. STP is the
second smallest country in sub-Saharan Africa with 155,000 inhabitants
in 2006 and is composed of two main islands. CV has 519,000 resi-
dents (2006) and comprises nine inhabited islands. Both countries were
Portuguese colonies and gained independence in the context of the last
wave of African decolonization in 1975. Accordingly, the identification
strategy in this study is based on a comparison of STP and CV before
and after the discovery announcements. If natural resources endowment
increases corruption, corruption should have increased in STP relative
to CV after the announcements.
The data used for the study come from household surveys conducted
by a team recruited and trained by the author. In STP, the survey was
submitted to 841 households in different areas between April and May
2004. In CV, the survey was submitted to 1066 households also in dif-
ferent areas of the country but during the period between December
2005 and February 2006. In each country, various questions were asked
about corruption in different fields, such as vote buying, courts, cus-
toms, allocation of scholarships for higher education abroad, health
care, police, and the allocation of state jobs. The questions pertained
to the situation at different points in time to reflect the change before
and after the oil discovery. The questionnaire also included a number of
demographic questions.
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K. Sekkat

The regression explains corruption in terms of a country dummy


(STP and CV), a time dummy (pre-oil with value 0 and post-oil with
value 1), and an interaction term between the two dummies. The coef-
ficient of the interaction term reveals whether the difference in cor-
ruption between STP and CV changed after the oil discovery. Control
variables reflect various demographic and attitudinal variables.
The results confirm that corruption increased in STP after the oil
discovery announcements of the late nineties. This was most visible
in vote buying (a direct mechanism for holding onto political power),
education (for holding future “elite” status), and customs (a channel
that facilitates the consumption of imported goods, potentially directly
funded by the new resources). Other services and allocations seemed to
witness less clear increases in corruption.
So far, in line with the majority of research on the causes of corrup-
tion, we have focused on intrinsic country characteristics, disregarding
the possibility of contagion from neighboring countries. However, cor-
ruption may spread across national borders for different reasons. First,
increasing cross-border business activities may allow corrupt behaviors
to spread due to learning and peer-group effects. Secondly, corruption
could also propagate because of increased cross-border activity by organ-
ized criminal groups. Third, countries in the same region tend to show
similar levels of corruption because they have similar individual charac-
teristics or similar institutional environments. Finally, indirect spillovers
could also occur because attendance of the same regional universities
or the same conferences may configure similar attitudes to corruption
(Attila 2008).
Márquez et al. (2011) examine whether corruption spreads across
neighboring countries using spatial econometric techniques and a cross
section of 171 economies. The average value of the CPI over the 2000s
is used as a dependent variable. The main explanatory variable is a
weighted average of corruption (based on the distance between coun-
tries) in neighboring countries. Control variables include average GDP
growth, fuel exporters, urban population (as a percentage of total popu-
lation), legal origin, and the WB governance indicators for political sta-
bility and voice and accountability.
3 Causes    
87

The results show that the level of corruption in a country is not influ-
enced by corruption of its neighbors. No significant spillovers or conta-
gion effects are found once the relevant determinants of corruption are
controlled for. Corruption is, therefore, not contagious. Similar indi-
vidual characteristics or similar institutional environments may explain
similar levels of corruption in neighboring countries, but corruption
does not spread across them. The rest of the results suggest that corrup-
tion is explained by several economic and institutional variables, such as
the level of economic development, the degree of urbanization, the legal
origin of the country, and some governance variables. The level of GDP
per capita and the degree of urban population are positively related to
the absence of corruption, whereas dependence on natural resources
and socialist and French legal origins seems to be associated with higher
levels of corruption. Finally, it is found that political stability deters
corruption.
Correa et al. (2016) argue that the finding that corruption does not
spread across neighboring countries is due to the nature of the econo-
metric exercise, that is, cross section estimation, used by Márquez et al.
(2011). Such econometric exercise does not make it possible to ade-
quately control for country-specific heterogeneity relating to cultural,
geographic, and historical peculiarities. The authors therefore used a
panel data estimation approach covering 123 countries over the period
1995–2012, which made it possible to control for heterogeneity.
The Freedom from Corruption Index provided by the Heritage
Foundation is used as the dependent variable. The main explanatory
variable is corruption levels in neighboring countries. It is constructed
as the average corruption score of all neighboring countries weighted
by the length of the common land border. Control variables are GDP
per capita, government size, urbanization, press freedom, imports as a
fraction of GDP, the duration of primary education, and country fixed
effects, which aim to control for the time-invariant peculiarities of each
country. Time fixed effects are also included.
The analysis provides evidence for substantial spillover effects of
corruption across countries. A one standard deviation increase in the
Freedom from Corruption Index in neighboring countries increases the
domestic index by 3.13 points on a scale of 0 to 100. This is equivalent
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to the difference in corruption levels between El Salvador (36) and Italy


(39) in 2012. This implies that particularly corrupt neighbors may
make it more difficult for a country to get rid of its own corrupt ten-
dencies. These findings can also have a more optimistic interpretation.
It is possible that the fight against corruption within one country may
spill over into neighboring countries and produce positive externalities.
However, the identified relationship between neighborhood corrup-
tion and own corruption emerges only for countries exhibiting a GDP
per capita above US$1230 in constant 2005 US$, and the magnitude
increases for richer economies. Accordingly, the benefits might mainly
hold for richer countries with well-developed institutions.

2.2 Characteristics of Institutions: Democracy,


Functioning of Democracy, and Decentralization

The empirical evidence pertaining to this section is extensively discussed


in Chapters 5–7. To avoid too much overlap, while still giving a flavor
of the most important empirical findings, the presentation here is lim-
ited to few studies.
Regarding democracy, Montinola and Jackman (2002) examine the
impact of competition in the political arenas on corruption. Two indica-
tors of corruption are considered: Business International for the period
1980–1983 and 66 countries, and Transparency International for the
period 1988–1992 and 51 countries. These indicators are explained in
terms of political competition, which is assessed using the average of
three subjective indicators and an indicator of voter turnout. The sub-
jective indicators reflect (i) freedom of group opposition, (ii) political
rights, and (iii) effectiveness of the legislative body. Other variables
which enter the regression are the share of the public sector in GDP,
a dummy variable that equals 1 for OPEC states, real GDP per capita,
and region dummies.
The authors find that political competition matters but that there is a
threshold in this relationship. Below the threshold, corruption is a little
higher in countries with a higher level of political competition than in
those with a lower level of political competition. Above the threshold,
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89

higher levels of political competition are associated with considera-


bly less corruption. In other words, corruption is likely to be slightly
lower in dictatorships than in countries that have partially democra-
tized. However, with more complete democratization (reflected in the
nature of elections and the effective power of elected legislators), coun-
tries experience much lower levels of corruption. This result suggests
that where political competition is limited, such as in Russia, Nepal, or
many Latin American countries, substantial corruption is likely even
with relatively free and fair elections.
An important mechanism by which democratic regimes succeed
in curbing corruption is by voting out a corrupt incumbent party.
Krause and Méndez (2009) examine the extent to which such mecha-
nism holds. This is formalized through the probability that voters will
retract their support for political candidates who they think are corrupt.
Changes in the degree of corruption are based on a comparison of the
CPI between the current and the last election.
The dependent variable is the change in the share of votes received
by the incumbent party as compared with the previous election, and
the main independent variable is the perceived change in the degree of
corruption. Control variables include a measure of absolute government
support, a measure of the length of the incumbent’s tenure (in years),
the ideological classification of the incumbent, the number of par-
liamentary seats controlled by the incumbent party, and the degree of
fractionalization in the government. The sample includes 35 countries
and covers the years between 1995 and 2007, which gives 107 elections.
There are 14 European countries, three North American countries, nine
Central and South American countries, six African countries, and three
Asian countries. In the sample, 19 countries have a parliamentary sys-
tem and 16 have a presidential system.
The results suggest that corruption in public office is effectively
punished by voters. Furthermore, the findings support the idea that
both the political system and the length of democratic experience are
important determinants of voter reactions to corruption. While voters
in countries with parliamentary systems or with relatively low levels of
democracy react negatively to an increase in corruption, no perceptible
effect of this kind is found in countries with mature democracies, and
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the evidence is inconclusive in the case of countries with presidential


systems.
Consistent with the studies discussed above, the relationship between
democracy and corruption depends on a number of factors, including
some features of democracy. Pellegata (2013) explores these factors,
using the 2000 WB Control of Corruption Index as the dependent var-
iable. A cross-sectional analysis is conducted on a sample of more than
100 countries. The measure of the current level of democracy is the
Polity IV index, and the features of democracy are the age of democ-
racy and total democratic years. The age of democracy is the number
of consecutive years a country had remained democratic as of the year
2000. Total democratic years are the sum of the overall number of years
a country was democratic, not including interruptions, between 1800
(or the year of independence) and 2000. Control variables include GDP
per capita in 2000, imports as a percentage of GDP in 2000, the degree
of state intervention in the market as measured by the Fraser Institute’s
Index of Economic Freedom, and three dummy variables for, respec-
tively, federal countries, Protestant countries, and former British colo-
nies. Finally, the author allows the relationship between corruption and
democracy to be nonlinear (quadratic and cubic).
The investigation confirms that the level of democracy affects cor-
ruption in a nonlinear way. The two variables are significantly related
in a quadratic manner. Neither the linear nor the cubic relationship
is statistically significant. The signs of the coefficients associated with
democracy and its square indicate that there is a U-shaped relationship
between the current level of democracy and corruption control. In other
words, an increase in the level of democracy starts having a significant
and positive impact on corruption control only after a certain threshold.
Regimes with “intermediate” levels of democracy tend not only to be
more corrupt than consolidated democracies but also more corrupt than
closed dictatorships. The analysis also confirms that the age of democ-
racy and total democratic years are both significantly and positively
related to corruption control.
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91

2.3 Characteristics of the Society and Citizens:


Culture, Values, and Gender

Miller (2006) focuses on the relationship between a society’s values and


corruption by comparing the values of Czechs, Slovaks, Bulgarians, and
Ukrainians toward corrupt practices. The study was based on over 7300
interviews: 6000 with members of the public and 1300 with officials
in the concerned countries. Interviews covered five categories of public
services: health, education, welfare, police, and a mix of others (court,
passport, and customs officials).
Concerning values, interviewees were asked whether the use of
money, presents, favors, or contacts to influence officials was (i) bad for
the country and for those involved, (ii) bad for the country but una-
voidable for people, or (iii) preferable because when you need a favor
from an official you can get it.
The results show that a majority of citizens consider such usage to
be bad (between 58 and 69%). Between 25 and 34% consider it bad
but unavoidable, while 7–12% see it as preferable. Czech citizens appear
to be the most “ethical”, while the three other countries exhibit similar
values. Although the figures are different, a similar response pattern is
found for officials
To examine whether the pictures that emerged from the questions
about values differed from actual practices, another set of questions was
posed. Citizens were asked: “If you had an important problem and an
official asked you directly for money to solve it, would you (i) pay if you
could afford it or (ii) refuse to pay even if you could afford it?” Officials
were asked whether they would accept either a “small gift” or a “big
gift” if it were offered by a client “for solving their problem”.
The questions about practices show that, except in the Czech
Republic, more citizens would pay than refuse (only a third). Regarding
officials, on average, 47% said they would accept “a small gift” and 17%
said that they would accept “big gift”. Across the five broad categories of
officials, police staff were among the most reluctant to accept small gifts
but not particularly reluctant to take big gifts. Health employees were
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particularly willing to take both large and small gifts. Again, the Czech
Republic appeared to be the most “ethical”.
Overall, both citizens and officials explicitly condemn the use of
bribes, but many confess to giving or taking them. This is not necessar-
ily because their values are irrelevant but possibly because they have to
contend with external pressures. Citizens respond to extortion, and offi-
cials respond to temptation. It seems that external pressures have more
impact than internal values.
Seleim and Bontis (2009) investigate the relationship between
cultural values, practices, and corruption in a larger set of coun-
tries than the preceding paper. They use the Global Leadership and
Organizational Behavior Effectiveness (GLOBE) dataset which is pro-
duced by the University of Pennsylvania and covered 62 countries in
2004. It is based on the responses of 17,300 middle managers from 951
organizations in the food-processing, financial services, and telecom-
munications services industries. The dataset covers nine dimensions of
cultural values and practices: (i) uncertainty avoidance, (ii) orientation
toward the future, (iii) institutional collectivism (individuals are encour-
aged to integrate into groups within organizations and society), (iv)
humanist orientation, (v) orientation toward performance, (vi) individ-
ual collectivism (the strength of ties within small groups), (vii) attitude
toward power, authority, and status, (viii) gender egalitarianism, and
(ix) assertiveness. Together with GDP per capita and a human develop-
ment index, these nine dimensions are used to explain the CPI.
The findings differ across the various dimensions and, more inter-
estingly, between values and practices. The tests suggest that seven out
of nine dimensions of practices are associated with corruption. In con-
trast, cultural value dimensions are not associated with corruption with
the exception of uncertainty avoidance values, which appear to signifi-
cantly increase levels of corruption. These results highlight the impor-
tance of distinguishing between values and practices in understanding
corruption.
Uncertainty avoidance practices reduce the level of corruption, mean-
ing that in societies that are characterized by high levels of uncertainty
avoidance practices, people are more likely to be respectful of formal
rules. Higher levels of future orientation practices reduce the level of
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93

corruption. This might result from the association between rewards and
future orientation behaviors in terms of long-term success. Institutional
collectivism practices are associated with low levels of corruption, sug-
gesting that high integration into groups or society reinforces ethical
standards and anti-corruption behaviors. High levels of performance
orientation practices are associated with lower levels of corruption, indi-
cating that achievement-oriented cultural practices and performance
excellence reduce corruption.
One possible weakness in the above studies is that they use data per-
taining to the values and practices in the country of residence of the
respondent instead of the values and practices in the respondent’s coun-
try of origin. For a number of foreign residents, it is likely that the
values of the country of origin rather than those of the country of res-
idence will influence attitudes toward corruption. To address this issue,
Barr and Serra (2010) focus on one country of residence, the UK, and
different countries of origin.1 They use an experimental method to
investigate whether cultural values at origin affect attitudes toward cor-
ruption. Specifically, they ask whether individuals who grow up in soci-
eties in which corruption is prevalent are more likely to be corrupt than
those who grow up in societies where corruption is rare. The analysis
is based on an experiment using two specially designed bribery games
conducted in 2005 and 2007. The participants were Oxford University
students originating from 40 different countries including a mix of
high- and low-corruption countries.
The game made it possible to create three dependent variables:
whether the individual has offered a bribe, accepted a bribe, or engaged
in bribery, irrespective of his/her role. These variables are explained in
terms of the CPI of the country of origin of the individual and dum-
mies for age, gender, whether the person is a graduate student or not,
and an interaction term between the CPI and the graduate dummy.

1Countries represented in the sample: Argentina, Australia, Bangladesh, Barbados, Belarus,


Canada, China, Germany, Greece, Hong Kong, India, Italy, Kazakhstan, Malawi, Malaysia,
Mauritius, New Zealand, Norway, Peru, The Philippines, Poland, Portugal, Romania, Russia,
Singapore, Slovenia, South Africa, South Korea, Sweden, Switzerland, UK, Ukraine, USA, and
Zimbabwe.
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The results confirm that cultural values internalized during childhood


play a determining role in individuals’ decisions about bribery later in
life. However, the results are different for undergraduate and graduate
students. The results for undergraduates support the hypothesis that
individuals who grow up in societies in which corruption is prevalent
are more likely to act corruptly than individuals who grow up in socie-
ties where corruption is rare. However, the hypothesis is not supported
for graduates. The authors explored two possible explanations for the
contrast between undergraduates and graduates: socialization (students
adopt the host country’s values and practices after a certain time of res-
idence) and self-selection (only “honest” students continue to the grad-
uate level). The results support the socialization explanation. Foreign
students assimilate more of the culture of their host country the more
time they spend there.
Given the importance of religion in shaping cultural values in many
societies, some research has focused on the relationship between religion
and corruption. Before proceeding, it should be kept in mind that the
term religion is somewhat misused in almost all studies. As pointed out
by North et al. (2013), in the absence of a thorough comparative theo-
logical investigation of the major world religions and their various views
on economic, moral, and cooperative behavior, no one is in a position
to assert which religions are more or less conducive to corruption. It is
advisable to consider the following studies as an exploration of whether
the difference in the share of the population professing a given religion
is related to the prevalence of corruption.
Mensah (2014) seeks to disentangle the effects of religion and
other cultural values on corruption using a sample of 62 countries
over the period 2000–2010. The cultural variables are drawn from the
GLOBE database presented above and are used to identify the follow-
ing 12 population groups: Anglo-Saxon, Nordic European, German
European, Latin European, Eastern European, Latin American, sub-Sa-
haran African, Middle Eastern, Confucian Asia, Southeast Asian,
Caribbean, and Pacific Islander. The data sources for religion are the
Pew Foundation, the CIA World Factbook, Wikipedia.org, and coun-
try-specific Web sites. These sources make it possible to compute the
share of the population that professes one of the following religions:
3 Causes    
95

Protestant Christian, non-Protestant Christian, Islamic, Buddhist, and


Hindu. Three measures of corruption are used as dependent variables.
These are the Control of Corruption Index, the Corruption Perceptions
Index, and the Heritage Foundation’s Freedom from Corruption Index.
Each dependent variable is explained in terms of religion and cultural
cluster variables. Control variables include indicators of perceived polit-
ical legitimacy and overall government effectiveness as well as per capita
GDP, central government spending, literacy and infant mortality rates,
and the percentage of raw fuels and minerals in exports.
Both cultural and religious differences appear to be related to cor-
ruption, even after controlling for other economic and political factors.
In particular, Protestantism, Buddhism, and Hinduism are associated
with less corruption than non-Protestant Christian, Islam, and other
religion/no religion. On the cultural side, the Anglo-Saxon cultural tra-
dition is associated with less corruption than other European groups,
although the results for German and Nordic cultures depend on the
specification. All the non-European cultural clusters are associated with
significantly higher corruption, but, here too, the results depend on the
specification.
Marquette (2012) argues that the evidence for a causal relationship
between religion and corruption is not convincing for three reasons.
First, the methodology in many studies identifies correlation not cau-
sality. Second, the datasets used vary highly across the literature, and
their aggregation at the country level does not provide any insight into
individuals’ attitudes toward corruption. Third, religion may have some
impact on corruption at the country level but might have very little
impact on a person’s actual corrupt tendencies because corruption is so
systemic that being the only “clean” one often makes little sense.
The analysis is based on the findings from a collaborative research
project on religion and attitudes toward corruption in India and
Nigeria. The research consisted of semi-structured interviews with 240
participants in total and focused on people’s views about religion and
corruption. In India, the research centered on Sikhism and Hinduism
in a major city in northern Punjab (Amritsar), Chandigarh (the capital
of northern Punjab), and Hyderabad (the capital of Andhra Pradesh in
southern India). In Nigeria, the research centered on Islam, Christianity
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and African Traditional Religion in Kano (Northwest), Abuja (the


Federal Capital, North central), Owerri (Southeast), and Ibadan
(Southwest).
Interview responses confirm that religion may have some impact on
attitudes toward corruption, but is likely to have very little impact on
actual corrupt behavior. This is because corruption is seen as being so
widespread and so built into the system that being honest often makes
little sense. Respondents point to a “selective moral disengagement”
which justifies their own attitudes and behavior toward corruption.
Corruption appears to be a collective action problem, rather than a
problem of personal values or ethics.
While Marquette (2012), by working at the individual level,
addresses one of the criticisms (data aggregation) of the studies of the
relationship between religion and corruption, North et al. (2013) com-
plement the analysis by considering a large collection of countries and
controlling for several variables including various ethnic religions and
the rule of law. They also collected information on two sufficiently dis-
tant years: 1900 and 2000.
The exercise consists of estimation regressions of the Control of
Corruption Index in 2004 on religion variables in 1900 and 2000,
which addresses the causality criticism. In all, 11 religious groups were
considered: African ethnoreligion, Asian ethnoreligion, Buddhist,
Catholic, Hindu, Islam, Jewish, Orthodox, Pacific Island ethnoreligion,
Protestant, Unaffiliated Christian, and Nonreligious. In the regression,
the religion variables are introduced as dummies. For each country,
the largest religious group’s dummy variable is coded as 1 and all other
religious groups’ dummy variables as 0. To measure corruption, the
Control of Corruption Index is used.
Overall, the findings are that corruption levels in 2004 are lower in
countries that are Protestant or have an Asian ethnoreligion. However,
the effects of religions groups are very different depending on whether
the religious status corresponds to 1900 or 2000. A number of statisti-
cally significant results are obtained using the religious status in 1900,
but very few using the religious status in 2000. The authors explain that
the results based on the religious status in the earlier year (1900) bet-
ter characterize the long-standing religious heritage of a nation, because
3 Causes    
97

many countries saw important changes during the twentieth century.


They also found that changes in the sample’s composition in terms of
countries and changes in control variables had important effects on the
estimates. Thus, disagreements in the literature over the effects of reli-
gious (and other) factors on corruption may only reflect differences in
sample composition rather than differences in the actual effect of the
variables.
We have already discussed the possibility of contagion effects from
neighboring countries in terms of corruption. The evidence provided
supports the existence of such spillover across countries. Dong et al.
(2012) address a similar question but at the individual level. Specifically,
they investigate whether the tendency of a person to be corrupt depends
on the corruption level of other individuals in the society. Their analy-
sis uses the European Values Survey (EVS) 1999/2000 and the World
Values Survey (WVS). The EVS is a European-wide investigation of
sociocultural and political change. The WVS is a worldwide dataset that
investigates sociocultural and political change. The WVS was first car-
ried out in 1981–1983, with subsequent surveys being carried out in
1990–1993, 1995–1997, and 1999–2001.
With the EVS, the analysis is based on the responses to several ques-
tions. The first question is whether it is always justified, never justified,
or somewhere in between for someone to accept a bribe in the course
of their duties. The responses are scaled from 1 (always justified) to
10 (never justified). The second question asks how many compatriots,
according to the respondent, accept a bribe in the course of their duties.
The responses are scaled from 4 (almost all) to 1 (almost none).
An ordered Probit model is used to examine whether the justifiabil-
ity of corruption is influenced by the perception of the prevalence of
corruption. Accordingly, the dependent variable is the justifiability of
corruption (first question), and the main explanatory variable is the
prevalence of corruption (second question). Control variables include
education level, political interest, religion, risk attitudes, the economic
situation, urbanization, and employment and marital status.
The results show that the higher is the perceived corruption of other
persons, the higher is the justifiability of corruption. The relevant coef-
ficient is always statistically significant at the 1% level, and the size of
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the effect is substantial: If perceived corruption rises by one unit, the


percentage of persons reporting that corruption is never justified falls by
between 3.8 and 5.1 points. Looking at the other variables, the results
reveal that political interest is negatively correlated with the justifiability
of corruption. A one-unit increase in the political interest scale increases
the probability of stating that taking bribes is never justified by around
1.5 points. There is also a negative correlation between education, age,
women, and religiosity on the one hand, and justifiability on the other
hand.
With the WVS, the response to a similar question to that of the
European Survey is used as dependent variable, namely the justifiability
of corruption. As for perceived corruption, the question is slightly dif-
ferent. The respondent is asked how widespread bribe-taking and cor-
ruption are in the country. The possible responses are: Almost no public
official takes bribes, few public officials do, or most public officials do.
The regressions contain similar control variables as before.
In all the specifications, the perceived level of corruption is statisti-
cally significant. If perceived corruption decreases by one unit, the per-
centage of persons reporting that corruption is never justified increases
by between 0.6 and 3.5 points. The control variables show a similar
configuration to that of the EVS estimates.
To further check the robustness of their findings, the authors depart
from the cross section used in the two previous sets of estimations to
use panel data. The dependent variable is also different. It is the ICRG
index of corruption over the period 1986–2003. The new estimation
method consists in testing whether the present level of corruption is
related to its past levels, which makes it possible to examine the dynam-
ics of conditional corruption. The implicit assumption is that past,
rather than present, experiences teach bureaucrats whether cheating is
more or less pervasive in the economy and therefore affect their atti-
tudes toward corruption. Thus, the regression explains the present level
of corruption in terms of its past level and several control variables, such
as law and order, democratic accountability, globalization, GDP per
capita, and population.
The coefficient of lagged corruption is highly significant and implies
that the past level of corruption has a strong positive relationship with
3 Causes    
99

the present level of corruption. Law and order and democratic account-
ability are also statistically significant. In sum, the micro-evidence and
macro-evidence in the paper coincide in revealing that an individual’s
own willingness to be corrupt depends on the corruption level of other
individuals in a society.
Lee and Guven (2013) investigate another issue, namely the role
of gender. This is in line with a considerable body of work that has
emerged over the past couple of decades and that has found systematic
differences in behavioral characteristics across gender (e.g., Eckel and
Grossman 1998). The study investigates whether the gender dimension
affects the results of the above analysis. More specifically, it focuses on
the impact of risk tolerance and gender on corruption. The study uses
data from the European Social Survey (ESS), which covered 26 nations
and 47,537 persons during the period 2004–2006. The ESS includes,
among others, questions on family, work and well-being, health, and
economic morality. The second round of the survey includes three key
questions about corruption. The first question asks whether interviewees
were asked for a bribe in the last five years. The second asks whether
they have offered a bribe themselves in the last five years. The third
question is on bribe justification and asks: “How wrong is a public offi-
cial asking someone for a favor or bribe in return for their services?”
The dependent variables are based on the responses to the three ques-
tions. They are coded as dummies where ever asked for a bribe = 1 and
never = 0, ever offered a bribe =1 and never = 0, and bribe justifica-
tion = 1 if seriously wrong and = 0 otherwise. The explanatory varia-
bles of interest are risk attitude and gender. Control variables relate to
personal, demographic, and lifestyle characteristics of individuals, such
as age, years of schooling, marriage, immigration, ethnic minority, trust,
and religiosity.
The analysis shows that men are associated with a lower probabil-
ity of seeing that bribery is wrong. However, this opinion is not asso-
ciated with offering a bribe. It is only associated with being asked for
a bribe. The predicted probability of viewing bribery as being unjusti-
fied for those with no exposure to bribery experiences is 0.7088, but
this decreases to 0.5971 when a person has been asked for a bribe
and offered a bribe before. For both males and females, risk takers are
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significantly more likely to offer a bribe and to be asked for a bribe.


They are also less likely to view bribery as being wrong.
Dollar et al. (2001) address a similar question using cross-country
data on 100 countries for the years 1985, 1990, and 1995. Their study
examines the relationship between female participation in parliament
and the level of perceived corruption as measured by the ICRG index.
The measure of female participation in parliament comes from a sur-
vey by the Inter-Parliamentary Union. Control variables include GDP,
GDP squared, Gastil’s Civil Liberties Index, population, average years
of schooling, openness to trade, and ethnic fractionalization. The esti-
mated effect of female participation in parliament is significantly posi-
tive at 1% and equals 3.53. This implies that a one standard deviation
increase in female participation in parliament leads to a 20% decline
in the standard deviation of corruption. Thus, the presence of female
parliamentarians seems to have a significant and negative effect on
corruption.
Swamy et al. (2001) complement the preceding analysis by exam-
ining whether corruption is less severe not only where women hold a
larger share of parliamentary seats but also where they occupy more
senior positions in the government. The analysis examines both the dif-
ference in gender judgement of bribe-taking and the difference in the
practice of bribe-taking. To address the first question, WVS data cover-
ing 18 countries in 1981 and 43 countries in 1990–1991 are used. To
examine the second question, the CPI is used.
From the WVS, responses to the following question—“How do
you see accepting a bribe in the course of one’s duties?”—are used.
Responses are scaled from 1 to 10, where 1 indicates that the behav-
ior can never be justified and 10 indicates that it can always be justi-
fied. These responses are used to construct the dependent variable as a
dummy taking the value 1 if the respondent says that bribery is never
justified and 0 otherwise. The explanatory variable of interest is a gender
dummy. Control variables include schooling, marital status, religiosity,
and age.
The results reveal that the percentage of women who think that
bribe-taking is never justifiable is much higher than the percentage of
men. The coefficient of the gender dummy is statistically significant and
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101

has the expected sign. The marginal effect corresponding to this coeffi-
cient suggests that, all else being equal, a man’s likelihood of responding
that accepting a bribe is never justified is 4.3 percentage points less than
the likelihood for a woman. Moreover, the gender differential in the
attitude to corruption seems to be a worldwide phenomenon.
The authors wonder whether the result that women disapprove of
corruption more than men is driven solely by the fact that they are less
likely than men to be employed and hence have less opportunity to
benefit from corruption. To test this explanation, the CPI is regressed
on three measures of women’s involvement in politics. The measures are
the proportion of legislators in the national parliament who are female,
the proportion of ministers and high-level government bureaucrats who
are women, and women’s share of the labor force. The tests control for
several variables, such as GDP per capita, the average years of education
completed by adults, the percentage of people in the population who
are Catholic and the percentage of people in the population who are
Muslim, whether the country has ever been a colony, and the existence
of democratic political institutions.
The estimated coefficient of women’s share of parliamentary seats is
highly significant. It implies that a one standard deviation increase in
women’s share of parliamentary seats is associated with a decrease in
corruption of slightly more than one-fifth of a standard deviation. The
estimates using the share of top ministerial or bureaucratic positions
held by women also give a highly significant coefficient, with a mag-
nitude nearly identical to that for women in parliament. When the
explanatory variable of interest is women’s share of the labor force, the
coefficient is also highly significant, with a magnitude very similar to
those obtained with the other measures.
Overall, both exercises suggest not only that women are less tolerant
of bribe-taking but also that corruption is less severe where women hold
a larger share of parliamentary seats and senior positions in the govern-
ment bureaucracy.
Sung (2003) questions the above results concerning gender on the
grounds that the observed association between gender and corruption
could be spurious because liberal democracies are associated with both
gender equality and better governance. Hence, this relationship might
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be a by-product of the joint association with liberal democracies. To


examine whether the argument is well founded, the author tests, among
other things, whether (i) liberal democracy and female participation in
government are positively correlated, (ii) liberal democracy is negatively
associated with corruption, and (iii) when the strengths of liberal dem-
ocratic institutions are held constant, the negative relationship between
female participation and corruption disappears. The corruption meas-
ure is based on the CPI of 1999. Three female participation measures
are used: the proportion of women among ministerial officials, the pro-
portion of women among sub-ministerial officials, and the proportion
of women among parliamentarians. Measures of democracy are drawn
from the Fraser Institute and concern the rule of law, press freedom,
and the democratic character of elections in 1999. Control variables are
GDP per capita, the proportion of population below the poverty line
and illiteracy.
Regarding the first test, it appears that female participation in gov-
ernment is positively correlated with liberal democracies. The bivariate
coefficient of correlation with the rule of the law ranges from 0.145 for
women in sub-ministerial positions to 0.515 for women in parliament.
The measure of women in ministerial positions is the most consistently
and strongly associated with the rule of law (0.359), press freedom
(0.489), and democratic elections (0.242). The proportion of women
occupying sub-ministerial positions exhibits the lowest correlation with
the same indicators of liberal democracy (0.145, 0.275, and 0.149,
respectively). The results of the second test show that liberal democ-
racy is negatively associated with corruption. The three measures of a
liberal democracy are all very strongly correlated with lower levels of
corruption.
Turning to the third test, the results strongly support the argument
that the negative correlation between gender variables and corruption
is essentially mediated by the degree of liberal democratization. The
regression coefficient pertaining to the influence of women in minis-
terial positions on corruption ceases to be statistically significant after
the three liberal democracy variables are introduced into the equation.
The same patterns of spuriousness hold for the impact on corruption of
women in sub-ministerial positions and women occupying parliament
3 Causes    
103

seats. When liberal democratic institutions are controlled for, the influ-
ence of gender drops irrespective of the gender indicator. In contrast,
when the level of female participation in government is controlled for,
the negative relationship between liberal democracy and corruption
remains significant.
Among the three control variables included in the multivariate equa-
tions, GDP per capita stands out as the most influential correlate of
corruption. The very powerful negative association between GDP and
corruption, across the different models, suggests that high economic
performance is in essence incompatible with poor public governance.
The relationship between poverty and corruption is statistically signifi-
cant and positive. For illiteracy, the negative association with corruption
is marginal.
Using a different approach, namely experimental, Alatas et al.
(2009) lend support to Sung (2003)’s idea that the observed association
between gender and corruption is more likely to reflect the political and
cultural context than any intrinsic difference between men and women.
The experiment is conducted in four countries, of which two are con-
sistently ranked among the least corrupt in the world (Australia and
Singapore) and two are consistently ranked among the most corrupt
(India and Indonesia). The experiments were run at the University of
Melbourne, the Delhi School of Economics, the University of Indonesia
in Jakarta, and the National University of Singapore. They involved
third-year undergraduate or postgraduate students and spanned several
sessions, each consisting of at least 30 subjects. A total of 1326 subjects,
of which 596 (45%) were men, participated in the experiments. The
number of participants in Australia, India, Indonesia, and Singapore
was 642, 309, 180, and 195, respectively.
The experiments were based on a three-person sequential-move game
and sought to examine (i) the incentive to engage in a corrupt act and
(ii) the incentive to punish a corrupt act even at a cost. The first player
in the game is a firm and is given the option to initiate a corrupt act by
offering a bribe to a government official. The second player is the official
who can either accept or reject the bribe. If the bribe is accepted, both
the firm and the official are economically better off at the expense of the
third player, namely the citizen. This player can respond to the corrupt
104    
K. Sekkat

act by punishing both the firm and the official. While the punishment
is costly to the citizen, it imposes a much larger monetary cost on the
firm and the official. Information about the bribe amount, the subject’s
age, gender, income, education stream, employment history, and fre-
quency of exposure to corruption was collected. Male and female sub-
jects participated in the three roles.
The results of the game are analyzed based on t-tests for differences
in the means of the behavior of participants and multivariate regression
analysis, where binary Probit models are estimated for the bribe, accept-
ance and punishment rates, and ordinary least square models for the
bribe and punishment amounts. Gender is the explanatory variable of
interest, and control variables are field of study (whether it is econom-
ics) and the percentage of each Australian subject’s life that has been
spent outside of Australia.
The t-tests show that overall the male participants have a higher pro-
pensity to offer bribes than the female participants, but that there are no
statistically significant gender differences in other behaviors. When the
data are split by individual countries, the observed difference in bribe
rates appears to be driven by Australia. In Australia, 91.6% of male par-
ticipants offered bribes compared with 80.4% of female participants. In
none of the other countries are significant gender differences observed
in the propensities to offer bribes. Further, in Australia, male partici-
pants also had higher acceptance rates and lower punishment rates than
female participants. The bribe was accepted 92.1% of the time when
it was offered to a male participant in Australia, while it was accepted
80% of the time when it was offered to a female participant. Australian
male participants in the role of the citizen chose to punish 49.2% of
the time, while Australian female participants chose to punish 62.6% of
the time. In India, Indonesia, and Singapore, no significant differences
in the behavior of the male and female participants in the three roles
were found. It seems, therefore, that the gender differences reported in
the previous studies may not be as universal as stated but rather culture
specific.
Connelly and Ones (2008) complement the cultural explanations
of corruption by focusing on individual intrinsic characteristics. Their
3 Causes    
105

exercise investigates whether, besides societal values, individual intrinsic


characteristics determine the difference in the degree of corruption.
The authors draw on the psychology literature, which has identified
five main factors which underpin the personality of an individual. These
are neuroticism, extraversion, openness to experience, agreeableness,
and conscientiousness. Neuroticism describes individuals’ tendencies
to be depressed, anxious, emotionally erratic, and lacking self-esteem.
Extraversion is composed of traits of sociability, dominance, and activ-
ity. Openness to experience describes individuals’ tendencies to be
interested in learning new ideas and culture. Agreeableness describes
individuals’ tendencies to be kind and polite. Conscientiousness refers
to the taste for achievements, attentiveness, reliability, and neatness.
Considerable research has explored the relationship between these five
personality factors and counterproductive work behaviors (CWBs), a
domain of behaviors including corruption.
In order to disentangle the effects of individual and societal char-
acteristics on corruption, the cultural value scores discussed above are
combined with the NEO Personality Inventory (NEO-PI-R). The
NEO-PI-R is one of the most commonly used measures of the five
traits discussed above and has been extensively used throughout the
world. The sample size differs across countries: from 112 in Hong Kong
to 3730 in Germany, with an average size of 986. The CPI is regressed
on individual (country’s mean across individuals’ personality profile)
and societal characteristics and control variables (GDP per capita and
religion).
The results show that many cultural dimensions are strongly corre-
lated with national personality means. Countries whose citizens are
higher in neuroticism have cultures that are higher in uncertainty avoid-
ance. Nations with high scores in extraversion and openness tend to be
high in individualism and lower in power distance, suggesting that such
cultures likely have greater accessibility to experience ideas and socializ-
ing with others. Nations high in agreeableness and conscientiousness are
high in power distance. More importantly, corruption appears related to
national personality. Countries that are high on conscientiousness and
low on openness to experience tend to be more corrupt. In addition,
106    
K. Sekkat

neuroticism tends to be a strong predictor of national corruption.


However, several cultural dimensions also seem related to corruption.
Countries that are collectivistic, high in power distance, and high in
uncertainty avoidance tend to be more corrupt.
It appears that both culture and personality are related to corrup-
tion with an adjusted-R2 of 0.88. However, cultural dimensions provide
more information about corruption than national levels of personality.
National personality adds a modest level to national culture to explain
corruption. The increase in the adjusted-R2 from adding culture to per-
sonality is 0.29 while when personality is added to culture the increase
is only 0.09. Finally, countries with less wealth and lower proportions of
Protestants tend to be more corrupt. Countries with higher proportions
of Catholics and Muslims tend to be slightly more corrupt. However,
the relationships between corruption and the percentage of Catholics
and Muslims dissipate after wealth is controlled for.
Anand et al. (2004) argue, however, that the above individual char-
acteristics should be complemented by another which facilitates partic-
ipation in corrupt acts: rationalization. This is linked to an interesting
result we gathered from other analyses (e.g., Dong et al. 2012), which
showed that the justifiability of corruption is not exogenous but
depends on a number of factors such as, for instance, the prevalence of
corruption among other people. The results show that the higher the
perceived corruption of other people is, the higher the justifiability of
corruption becomes. This specific trait helps a person to accept being
corrupt. And indeed, real life shows that corruption often involves
people who are far from having the prototypical image of a criminal.
They are habitually upstanding community members, givers to charity,
and caring parents who, in general, condemn corruption. One possible
explanation for this puzzling observation is the rationalization tactics
used by individuals committing corrupt acts. Rationalization is defined
as a mental strategy that enables individuals to view their corrupt acts as
justified. The strategy is used to neutralize any regrets or negative feel-
ings that result from participating in unethical acts. It includes the fol-
lowing six tactics:
3 Causes    
107

1. Denial of responsibility: An individual engaged in corrupt behavior


perceives that he/she has no other choice than to participate in such
activities.
2. Denial of injury: The person is convinced that no one is harmed by
the actions; hence, the actions are not really bad.
3. Denial of victim: The person counters any blame for the actions by
arguing that the violated party deserved whatever happened.
4. Social weighting: The person rejects criticism and argues that others
are worse than he/she is.
5. Appeal to higher loyalties: The person argues that the violation of
norms is due to the attempt to realize a higher-order value.
6. Metaphor of the ledger: The person rationalizes deviant behavior
because of accrued dedication (time and effort) in his/her job.

2.4 Characteristics of the Economy: Regulatory


Quality, Economic Competition, and Economic
Development

In the papers reviewed so far, GDP per capita has often been used as
a control variable. Almost all these papers find a negative correlation
between this variable and corruption, meaning that the more developed
a country is, the lower corruption tends to be. However, such an associ-
ation does not mean that development (higher per capita GDP) causes
lower corruption. To address this question, Gundlach and Paldam
(2009) use instrumental variable estimation methods where the average
CPI over the period 1995–2006 is explained in terms of GDP per cap-
ita in constant dollars and a number of control variables, such as dum-
mies for French and English origins of commercial and company laws,
the share of Protestants in the population, the share of Roman Catholics
in the population, and the number of suicides per 100,000 inhabitants.
The explanatory variable of interest is GDP per capita of 98 countries.
Using its contemporary level in the regression may give biased estimates
because such a level may itself depend on contemporary corruption.
To avoid this risk, GDP per capita is instrumented using prehistoric
108    
K. Sekkat

measures of countries’ biology (the number of domesticable big mam-


mals and the number of domesticable wild grasses) and geography (cli-
matic conditions, latitude, relative East–West orientation, and size of
the landmass to which a country belongs).
The main result using the IV method is that the long-run causality
is entirely from income to corruption. Accordingly, it seems that there
is a corruption transition: As countries get rich, corruption vanishes.
The estimated magnitude of such long-run effect implies that the differ-
ence between the 10th percentile (6.61) and the 90th percentile (9.93)
of income results in a 4.95 corruption-point difference. This is sizeable
since the CPI varies between 0 and 10. The findings are also that the
share of Protestants decreases corruption while the share of Catholics
increases corruption. Similarly, English origin of commercial and com-
pany laws is associated with lower corruption, while French origin is
associated with higher corruption. Finally, the suicide rate is signifi-
cantly and positively correlated with the degree of corruption.
Another characteristic of the economy that is suggested as causing
corruption is the degree of product market competition. In the concep-
tual part, it was explained, however, that the sign of the effect is ambig-
uous. Low competition means that firms enjoy high rents. Bureaucrats
may therefore have incentives to engage in malfeasant behavior in order
to get a part of the rent. However, high rents also imply that the legisla-
tor would have strong incentives to write bureaucrats’ contracts in a way
that results in high control and less corruption.
Ades and Di Tella (1999) offer one of the first empirical studies to
examine the relationship between rents and market structure on the one
hand and corruption on the other. Measures of corruption are drawn
from Business International Corporation (52 countries over the period
1980–1983) and the World Competitiveness Report (31 countries for
the years 1989 and 1990). Since direct measures of rents and market
structure are not readily available, three proxies are used with the 1980s
sample and five proxies with the 1990s sample. The three proxies are the
share of imports in GDP, fuel and mineral exports, and trade distance.
The last of these is the average distance to the capitals of the world’s
20 largest exporters weighted by values of bilateral exports. The five
proxies include the above three variables plus the extent to which the
3 Causes    
109

market is dominated by a limited number of enterprises and the effec-


tiveness of antitrust laws, both from the World Competitiveness Report.
Control variables are real per capita GDP, schooling and Gastil’s Index
of Political Rights.
Irrespective of the types of regression (cross section or panel with
country and time fixed effects), control variables, and measures of cor-
ruption, the findings are that countries where firms enjoy higher rents
tend to have higher corruption levels. In particular, corruption is higher
in countries where domestic firms are protected from foreign competi-
tion with economies dominated by a small number of firms, or where
antitrust regulations are not effective in preventing anti-competitive
practices. The size of the effect is large: Almost a third of the corruption
gap between Italy and Austria can be explained by Italy‘s lower exposure
to foreign competition.
Alexeev and Song (2013) use more accurate measures of corrup-
tion and market structure to examine their relationship. The data are
collected at the firm level and come from the WB’s Productivity and
the Investment Climate Private Enterprise Survey. They are based on
responses to a questionnaire administered to several thousand firms,
mostly in developing and transitional countries, between 2001 and
2005. The empirical strategy consists in regressing the responses related
to corruption on measures of competition and control variables.
Corruption is measured by the percentage of annual sales paid in bribes,
which is based on the answer to the following question: “To get things
done, what percent of annual sales would gifts or informal payments to
public officials cost a typical firm like yours?” The survey also includes
questions enabling the computation of several measures of the intensity
of competition, such as the number of competitors, markup over firm’s
costs, the extent of customer reaction to a hypothetical price increase,
national market shares, and industry concentration ratios. Controls
include firm characteristics that are likely to be exogenous to corrup-
tion, as well as country and year fixed effects.
The results show no evidence of a negative relationship between
competition and corruption. On the contrary, a significant and pos-
itive association between the intensity of competition and corrup-
tion emerges, implying that higher competition goes with higher
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corruption. The effect is substantial: A one standard deviation increase


in the markup measure decreases the paid bribe by about 0.8 percent-
age points. However, this positive relationship does not always hold
strongly. The result that higher competition, which goes with lower
rent, is associated with higher corruption might appear odd. According
to the authors, the explanation lies in the distinction between extortive
(or collusive) and cost-reducing corruption. Extortive corruption seeks
rent-sharing without any counterpart: no rent–no corruption. Cost-
reducing corruption implies that something will be received in return.
The question in the survey (“To get things done…”) seems to reflect
cost-reducing rather than extortive corruption. Since in more competi-
tive environments firms are more sensitive to cost reduction than firms
having high market power, the result is that higher competition goes
with higher corruption. Note that Diaby and Sylwester (2015) examine
similar question but focus on post-communist countries. They also find
that greater market competition increases the amount of bribes paid.

2.5 Characteristics of the Corruption System: Systemic


Corruption

Systemic corruption refers to corruption which is sustained by


implicit or explicit agreements among civil servants and/or politi-
cians. Compared with the extensive empirical literature on other
causes of corruption, there are very few empirical studies focusing on
corruption’s systemic nature. There are, however, many specific exam-
ples of this phenomenon. Khan (2008) reports that, under the rule of
Mobutu, the extent of systemic corruption in Zaire (now Democratic
Republic of Congo) was estimated in the 1970s at 60% of the annual
government operating budget. Zaire under Mobutu was the example
par excellence of what some authors name “kleptocracy” to differenti-
ate it from simple corruption. Gong (2002) provides different exam-
ples from China. In Lianyungang (Jiangshu Province), a smuggling case
implicated at least 35 officials in different government agencies. Each
of them took a share in a smuggling operation involving more than
seventy luxury cars. This led to a loss to the state of RMB22 million
3 Causes    
111

in duties. More surprising is that the bureau chief of the city’s Public
Security Department secured parking spaces for the cars, while customs
officers provided the smugglers with official documents. In Yuanjiang
(Hunan province), investigations revealed that 61% of the cotton the
government procured from peasants at the state price was re-sold to
the market at a much higher price. The number of government offi-
cials involved in such activities was around 63 and included the wife of
the mayor, the head of the city’s Price-Control Bureau, the director and
the deputy director of the City Financial Commission, and the chief
manager of the Textile Corporation. Finally, in Tai An (Shandong prov-
ince) almost all the leading cadres in the city government were found
guilty of corruption. The case in question involved a person who bribed
the city’s police chief in order to obtain a license for his smuggled cars.
The police chief shared bribes with his boss, the director of the Public
Security Bureau, who further bribed the deputy mayor in charge of
the city’s legal affairs. The process continued, involving the party lead-
ers of the city, the deputy party secretary, and secretary. The secretary
alone received over RMB 600,000 in bribes. Ades and Di Tella (1997)
report cases from South Korea, where a defense procurement program
representing one-third of government spending over the 1970s and
1980s (around US$9637 million) was the subject of an investigation
that ended in 1993 with a former defense minister being convicted of
accepting a US$370,000 bribe for arranging contracts. A second former
defense minister was also convicted of accepting a kickback on a sub-
marine contract. During 1993, the investigations led to no fewer than
39 generals being sacked, reprimanded or thrown in jail.
Persson et al. (2013) shed some light on what makes such systemic
corruption work. They report the results of interviews conducted in
Kenya and Uganda which confirm that the failure of anti-corruption
reforms in these countries came from ignoring the systemic nature of
corruption. The interviews pointed to a number of costs to acting fairly.
The majority of interviewees assert that acting fairly is meaning-
less since this will not make any difference anyway. Bribers do not
care about paying because they want to access something that cannot
be obtained without corruption. Bribe-takers argue that if they do not
take the bribe, it will be taken by somebody else. Further, many of the
112    
K. Sekkat

interviewees believe that acting honestly is a waste of time which can


bring considerable trouble. Public officials who refuse to enrich them-
selves are regarded as stupid. Moreover, if you have an office but do
not use it to help your family, you will suffer stigmatization and social
exclusion. All these factors mean that the price for acting honestly is too
high.
The costs of acting fairly can go far beyond the inconveniences
discussed above. They can include losing one’s job or even life.
John Githongo, Kenya’s former Permanent Secretary in Charge of
Governance and Ethics under President Mwai Kibaki, was told that the
Kenyan intelligence would “put something in [his] tea” if he revealed
what he knew about the political elite’s involvement in corruption. In
2006, Githongo eventually had to flee the country after realizing that
even the president and his men had turned their backs on him (Persson
et al. 2013).
Ogungbamila (2014) conducts a similar study to the one above but
in Nigeria. The analysis is based on the responses of 536 employees
(298 males and 238 females) from public organizations in six states of
southwestern Nigeria. All respondents had job tenure during the period
of the study (2001–2013). They had to fill in a questionnaire covering
their personal data, the frequency of reporting of corrupt acts per year
during the period of the study, and the factors that affected their will-
ingness to disclose corrupt acts during the same period.
Respondents had to choose one or more of the following factors
affecting their willingness to report: (i) perceived inability of reporting
to bring about the desired change in the behavior of wrongdoers, (ii)
fear of attack from wrongdoers, (iii) fear of being ostracized, (iv) gov-
ernment’s insensitivity to the trouble of the citizens, (v) lack of integrity
in government’s anti-corruption crusades, (vi) lack of trust in Anti-
Corruption Agencies, (vii) perceived inefficiency in the court process,
and (viii) the stress associated with being a witness.
The results indicate that 2013 witnessed the highest frequency of
reporting followed by 2012. Year 2002 witnessed the lowest frequency
of reporting. There were no gender differences regarding the frequency
of reporting from 2001 to 2012 and regarding the effect of social and
psychological factors. In contrast, there were significant differences in
3 Causes    
113

the roles of the various social and psychological factors. The factors cited
were, by decreasing frequency, the perceived inelegance of whistleblow-
ing (74.2%), the feeling that corruption had no direct victims (71.2%),
corrupt persons are too powerful to be prosecuted (69.7%), the fear of
being ostracized (69.1%), perceived inefficiency of the court process
(63.8%), reporting would not bring the desired change in behavior
(63.2%) and the perceived stress associated with being a witness to cor-
rupt acts (61.5%).
Tavits (2010) further illustrates what makes systemic corruption
work by investigating whether public officials and citizens are more
likely to engage in corruption when they perceive that corrupt behavior
is widespread among their peers. The analysis is based on two nationally
representative datasets from Estonia and refers to the year 2004. One
dataset covers citizens (788 persons) and the other public officials (791
persons).
In the case of citizens, the question concerns direct involvement in
corruption. The respondents were asked: “Have you ever paid a bribe
or offered a gift to a public official in order to influence the provi-
sion of a public service?” A dummy variable taking the value 1 if the
response is yes and 0 otherwise was constructed and used subsequently
as a dependent variable. For public officials, the central question is of
the type: “Imagine that you must decide whether or not to give finan-
cial support for certain projects. One of the applicants for financial sup-
port offers you a trip to a summer resort in case you decide in favor of
his/her project. Would you decide in favor of the project?” Here, too, a
dummy variable is constructed and takes the value 1 if the response is
yes and 0 otherwise.
Since the focus here is on how involvement in corruption depends
on the perceived pervasiveness of corruption, respondents were asked to
give their opinion on a scale of 1 to 4 (1 = not at all common, 4 =
very common) about the following behaviors: (i) A driver offers a police
officer a good or a service from his or her firm at a discount price in
order to avoid a speeding ticket, (ii) An entrepreneur offers the head-
master of an elite public school a trip to a summer resort for admitting
his or her son to the school, (iii) A public official uses a government
provided car for private purposes, (iv) A civil servant offers, for a fee,
114    
K. Sekkat

lectures in the area of his or her work-related expertise, (v) An entre-


preneur calls up a public official who he or she knows from previous
personal contacts and asks to fast-track the processing of his or her file,
(vi) An entrepreneur offers a public official personal favors in return for
a public contract, (vii) A public official buys goods on behalf of his or
her institution from a company owned by his or her relative, and (viii)
A patient is moved up on a waiting list for surgery because his or her
brother is friend of the surgeon. The explanatory variable of interest is
the perceived pervasiveness of corruption and is computed as the aver-
age of all responses. Control variables include generalized trust, trust in
government, salary level and satisfaction with the workplace.
The results support the idea that perceived pervasiveness of corrup-
tion is a significant predictor of the corruptibility of a public official.
For a unit increase in the perceived pervasiveness of corruption score,
the probabilities of agreeing with a corrupt deal increase by a factor
of 3.5. Put another way, somebody who thinks that corrupt activities
are very common is about ten times more likely to be corruptible than
somebody who thinks that corrupt activities are not at all common.
Turning to the general public, both perceived pervasiveness and
acceptability of corruption have the expected and statistically significant
effect on the likelihood of having paid a bribe. The effects remain signif-
icant even when controlling for extortion. When all other variables are
at their average value, the predicted probability of having paid a bribe is
0.10 for a respondent who has never been asked to pay. This probability
increases to 0.16 for a respondent who has been asked once, 0.23 for
someone who has been asked twice, and 0.91 when the variable is at its
maximum value. In sum, the empirical models demonstrate that both
public officials and citizens are influenced by their perception of what is
acceptable and commonplace.

3 Conclusion
The causes of corruption are numerous and go from the characteristics
of a country (geography, history, political and institutional systems,
centralization, and regulation) to the characteristics of its population
3 Causes    
115

(customs, trust, and religion). The organization of corruption itself


plays an important role in perpetuating corrupt situations. Analysis of
the evidence shows the following regularities. Developed economies
are less corrupt. Federal states are more “corrupt” than unitary ones.
Democracy and elections reduce corruption but only to some extent.
Corruption in public office is effectively punished by voters, but a par-
tisan bias makes voters more tolerant of corruption within their party.
More importantly, democratic culture and history are stronger deter-
rents of corruption than democratic status by itself. Openness to trade
seems able to reduce corruption. Political instability tends to raise cor-
ruption. Natural resources’ abundance is positively and significantly
associated with the extent of corruption. Finally, the systemic nature of
corruption is highly responsible for the persistence of corruption.
The evidence is mixed concerning the spillover of corrupt practices
across countries or individuals, as it is concerning religion, gender, and
history. The level of corruption in a country is not influenced by cor-
ruption of its neighbors, and an individual propensity to corruption
may or may not be higher if corruption among others is high. Religion
may have some impact on attitudes toward corruption, but it has very
little impact on actual corrupt behavior. Countries with Protestant tra-
ditions and those with a history of British rule are sometimes found to
be less corrupt. There is no evidence of a negative relationship between
market competition and corruption. Finally, some studies suggest that
women are not only less tolerant of bribe-taking but also that corrup-
tion is less severe where women hold more political power. Other stud-
ies, however, support the notion that the association between gender
and corruption could be spurious because liberal democracies are associ-
ated with both gender equality and better governance.

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4
Consequences

Besides the moral considerations, the rationale for the fight against
corruption is built on its economic, social, and political effects. The pos-
itive or negative nature of these effects is controversial, at least among
economists. Some authors argue that corruption may be beneficial,
“greasing-the-wheels” when bureaucracy is inefficient or regulation is too
burdensome. Other authors argue that while corruption can grease the
wheels at the microeconomic level, it ends up “sanding the wheels” at the
macroeconomic level through spillovers and externalities among economic
activities. The economic effects of corruption concern growth, physical
and human capital formation, productivity, infrastructure, international
trade, and FDI. The non-economic effects of corruption concern the pro-
vision of health care and education services, safety and security, environ-
ment, electoral participation, and confidence in public institutions.

1 Conceptual Analysis
Insofar as corruption involves only transfer payments from bribe pay-
ers to bureaucrats or politicians, it does not necessarily impose a net
social cost (Ehrlich and Lui 1999). Accordingly, the costs discussed in
© The Author(s) 2018 119
K. Sekkat, Is Corruption Curable?, https://doi.org/10.1007/978-3-319-98518-3_4
120    
K. Sekkat

this section go beyond such transfer of wealth between two parties to


examine the impacts on important features of the country. As explained
above, however, the literature is not unanimous about the generality of
such costs. One branch of the literature suggests that corruption can
be beneficial to the society when other institutional dimensions are not
functioning well. Another branch refutes this idea. In this conceptual
section, we will start by briefly presenting the justifications for the costs
of corruption independently of the functioning of other institutional
aspects. In other words, we start with the unconditional effects of cor-
ruption and distinguish between the economic and the non-economic
costs. Then, we will compare the points of views concerning the “sand-
ing-the-wheels” vs. the “greasing-the-wheels” roles of corruption, which
consider the impact of corruption as conditional on the functioning of
other institutional dimensions.

1.1 Unconditional Economic Effects

The rationale behind the economic costs of corruption is the following:

1. First, corruption raises the costs of doing business and thus under-
mines the incentives for private entrepreneurship. In addition, cor-
ruption causes firms to waste time negotiating with corrupt officials,
which further augments the transaction costs of doing business.
Finally, the existence of corruption diverts resources from their pro-
ductive allocation toward the defense of property rights. These costs
may become so high that firms are obliged to go at least partly infor-
mal or renounce certain investments (Boehm and Joerges 2008).
2. Second, given its secret nature, corruption increases the risk of
undertaking transactions and contracts. Since corruption is, in gen-
eral, illegal, litigation around a corrupt deal cannot be brought before
a court. In particular, if the investment is specific, politicians or
civil servants may extort additional favors once the investment has
been made by threatening to break the corrupt deal. Such insecurity
may prevent transactions even though they offer, ex-ante, potential
mutual gains (Méon and Weill 2010).
4 Consequences    
121

3. Third, the prospect of corruption can motivate unjustified inter-


ference from politicians and interest groups. Besides the resulting
increase in transaction costs and uncertainty, such interference can
distort the decision-making process and the setting of rules and reg-
ulations. In fact, in many instances, public decisions are not simply
determined by public interests but can be affected by campaign con-
tributions, political advertising, and other ways of exerting political
pressure (Aidt 2016).

In order to illustrate more precisely the impacts of corruption on the


economic sphere, we will start from the traditional decomposition of
GDP growth according to growth in its supply and demand sides. The
former includes productivity and physical and human capital. The latter
can be split into domestic and external demands.
Corruption negatively affects physical capital through reduced invest-
ment. This is the result of the increased cost of investment because firms
have to take into account the costs of bribery when setting up a busi-
ness and keeping it running (Boehm and Joerges 2008). This provides
an incentive not only to accumulate less capital but also to use it less
efficiently. Depending on which activity or location is most vulnera-
ble to corruption, firms may limit the size of their base or misallocate
investment across plants (Méon and Weill 2010). Firms will also have
an incentive to accumulate generic instead of specific capital although
the latter might more productive. This is because generic capital has an
option value which makes it more easily reallocated to other purposes
than specific capital. The prospect of corruption may also encourage the
government to favor public over private enterprises, which reduces pri-
vate investment although it is generally seen as more productive than
investment by public enterprises (Restuccia and Rogerson 2008).
As with domestic investment, corruption can be a major obstacle
to foreign direct investment (FDI), which is generally considered as
a major source of positive spillovers for domestic firms. The literature
suggests similar negative effects of corruption on FDI as in the case of
domestic investment, i.e., an impact on the return and the risk asso-
ciated with investing. However, it emphasizes that the main institu-
tional impediment to FDI is the excess risk that corruption generates.
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K. Sekkat

Investment is not only subject to a risk of predation and holdup but


also, and chiefly, to a risk of expropriation and nationalization.
Just as with physical capital, corruption has a potentially impor-
tant effect on human capital. As we will see below, corruption reduces
GDP per capita and facilitates the misappropriation of public funds. An
important consequence is that corruption is likely to create major dif-
ficulties for governments to provide basic services such as public edu-
cation and health services (Dridi 2014). By reducing GDP per capita,
corruption affects tax revenue and hence the volume of funds available
for government spending. Moreover, corruption diverts public resources
from human capital formation to less growth-enhancing activities. For
instance, it will reduce the share of public spending on education and
increase the share of military spending. Finally, the possibility of rents
induced by the existence of corruption distorts individual decisions to
invest in human capital. To benefit from rents caused by government
intervention in the economy, people are likely to spend less time in
education and focus more on accumulating political capital that ena-
bles them to access bureaucratic power. The existence of rents influences
choices in the field of education. It may prompt students to choose cer-
tain types of studies (e.g., law) over others (e.g., engineering), although
the latter may be more conducive to growth.
Turning to productivity, as we discussed above, corruption diverts
physical and human capital from productive to less productive sectors.
In addition, corruption can also negatively affect international trade,
hampering imports of certain goods (machinery or intermediate prod-
ucts) which are important vehicles for the diffusion of new ideas and
technologies and, hence, growth. Moreover, corruption can inhibit
managers’ incentives to improve firm performances. Corruption also
forces firms to devote time and effort to protect their property. Another
effect comes from the fact that corruption can facilitate the creation or
the survival of monopolistic positions. It is extensively documented that
such positions, by limiting competition, do not incite firms to improve
their productive and dynamic efficiency. Productive efficiency implies
that the output–input combination is brought to the optimal produc-
tion frontier and firms produce at the lowest cost. Dynamic efficiency
pushes firms to seek opportunities for further reducing costs, improving
4 Consequences    
123

product quality, or introducing new technologies. This, in turn, fosters


technological progress, which is a major source of growth.
On the demand side, we will start with the domestic component.
The most important part of domestic demand is private consumption,
which depends directly and heavily on income. Accordingly, a first
effect of corruption on domestic demand is straightforward. Corruption
reduces income growth, which can be expected to directly reduce pri-
vate consumption growth. Other effects are subtler and stem from the
impact of corruption on fiscal policy. The presence of corruption also
affects the optimal mix between consumption and income taxation
(Alm and Barreto 2003). The optimal tax mix for a corrupt government
relies more heavily on consumption taxes than on income taxes, while
for a non-corrupt government the optimal mix relies more heavily on
income taxes than on consumption taxes. Shifting the tax mix from
income taxes toward consumption taxes would negatively affect private
agents’ welfare and, hence, consumption.
International trade through exports affects the demand for a given
country’s products and services. As before, corruption increases the cost
and uncertainty of transactions. However, the main impediment to
international trade is the problem of contract enforcement, especially
since international transactions involve traders in countries whose legal
and political jurisdictions differ. The lack of contract enforcement may
act as a tariff on risk-neutral traders and therefore reduce trade.

1.2 Unconditional Non-economic Effects

While many studies have examined the effect of corruption on eco-


nomic variables, only a few have investigated the non-economic effects,
such as those related to poverty, infrastructure, trust, political partici-
pation, and regime legitimacy. The rationales behind such non-eco-
nomic effects are diverse. First, corruption could make politicians give
economic development of the country less priority than their own
interests or those of their allies. Other areas might also find themselves
lower on politicians’ priority lists, such as income inequality, access to
health, enforcement of the rule of law, or environmental degradation
124    
K. Sekkat

(Levin and Satarov 2000). Second, as in the case of education discussed


above, corruption reduces the amount of revenue that can be collected
through taxation and, hence, the resources available for public spend-
ing. Third, corruption distorts the structure of public spending in favor
of costly projects, military equipment, government security services,
and vote-buying. In addition, corrupt governments prefer, in general,
to fund big projects (“white elephants”) because they are more visible
to citizens and also because they offer more opportunities for corrupt
deals (Boehm and Joerges 2008). In contrast, spending on operation
and maintenance is given a lower priority, which results in a deteriora-
tion in the quality of infrastructure. Over time, some projects that were
initially development-enhancing become unproductive. Fourth, corrup-
tion can undermine people’s trust in the political system, its institutions
and its leaders, leading to the destruction of, or at least serious damage
to, the country’s “social contract” (Uneke 2010). This contributes to the
creation of an atmosphere of tension, dishonesty, weak or selective law
enforcement, cynicism, and erosion of faith in the political and admin-
istrative system. More dangerously, corruption becomes commonplace
and even a survival strategy (Boehm and Joerges 2008). The system can
become caught in vicious circle where bad institutions favor corruption,
which in turn further weakens the quality of institutions. Once trapped
in such a circle, it is extremely difficult for a country to escape. The
resulting social tensions and political stability may provide a pretext for
military or foreign interventions and often create further handicaps for
national economic development (Uneke 2010).

1.3 Conditional Effects: “Greasing” Versus “Sanding”


the Wheels

So far, we have discussed the potential negative impacts of corruption


without explicitly taking account of other institutional features of the
country. Some studies point to possible positive effects of corruption.
The core of the debate lies in the combination of corruption with a
low quality of other institutional features of the country. We refer to
this controversy as the “grease-the-wheels” versus the “sand-the-wheels”
debate.
4 Consequences    
125

Staring with the “grease-the-wheels” hypothesis, a poorly functioning


bureaucracy is considered to be the most prominent inefficiency that
corruption can solve. Huntington (1968) states: “In terms of economic
growth, the only thing worse than a society with a rigid, overcentral-
ized, dishonest bureaucracy is one with a rigid, overcentralized, honest
bureaucracy”. There are various aspects of an ill-functioning bureau-
cracy that can be compensated by corruption. One example is slowness.
Using a formal economic model, Lui (1986) shows that corruption can
efficiently lessen the time spent in queues. The reason is that bribes give
bureaucrats an incentive to speed up the process, in an otherwise slug-
gish administration (see also Leys 1965). Furthermore, Huntington
(1968) argues that corruption can help surmount tedious bureaucratic
regulations and foster growth. According to him, such a phenomenon
was observed in the 1870s and 1880s in the USA, where corruption by
railroad, utility, and industrial corporations resulted in faster growth.
Another consequence of an ill-functioning bureaucracy concerns the
quality of civil servants. Leys (1965) and Bailey (1966) argue that cor-
ruption can amend a bureaucracy by improving the quality of its civil
servants. If wages in government service are insufficient, the existence of
perks may constitute a complement that may attract able civil servants
who would have otherwise opted for another line of business.
Finally, Beck and Maher (1986) and Lien (1986) suggest that cor-
ruption may encourage good decisions by officials. If bureaucrats do
not have enough information or are not competent to take certain deci-
sions, corruption can replicate the outcome of a competitive auction.
The authors formally show that when attributing government procure-
ment contracts, the ranking of bribes can replicate the ranking of firms
by efficiency. Moreover, if some investment projects are dependent on
the attribution of a license, corruption may be an efficient way of select-
ing such projects. Here again, corruption in the attribution of a govern-
ment license is very similar to a competitive auction. The intuition (Leff
1964) is that licenses tend to be allocated to the more generous bribers,
who may be more efficient. The capacity to offer a bribe is thus corre-
lated with talent.
Another inefficiency put forward as driving the “grease-the-wheels”
hypothesis concerns regulation and policies. Bailey (1966), for instance,
126    
K. Sekkat

argues that if bribes can help private agents to evade a public policy
designed to solve a particular problem, they may thereby allow them to
find an overlooked and better-suited solution. This may, in turn, allow
an improvement in the policy’s outcome even in terms of the govern-
ment’s objectives. Leff (1964) and Bailey (1966) also argue that graft
may simply be a hedge against bad public policies. This is particularly
true if institutions are biased against entrepreneurship, due for instance
to an ideological bias. By simply impeding inefficient regulations, cor-
ruption may then limit their adverse effects. It may also result in an
alteration of the policy in a way that is friendlier to growth.
It has also been argued that graft may in some circumstances improve
the quality of investments. This is the case (Leff 1964) when govern-
ment spending is inefficient. If corruption is a means of tax evasion, it
can reduce public tax revenue. Provided the bribers invest efficiently,
the overall efficiency of investment will be improved. In addition to the
quality of investments, some authors argue that corruption may also
raise the level of investment. For instance, Leff (1964) asserts that cor-
ruption may constitute a hedge against other risks originating from the
political system, such as expropriation or violence. If corruption helps
to mitigate those risks, investment will turn out to be less risky and may
accordingly increase.
All the above-mentioned arguments share the presumption that cor-
ruption may positively contribute to growth and development because
it compensates for the consequences of a defective bureaucracy and
bad policies. One may nevertheless wonder whether corruption creates
or reinforces other inefficiencies and whether bribers are always taking
more efficient decisions than the public authorities. Although brib-
ery may have benefits in a weak institutional environment, it may also
impose additional costs in the same circumstances. The existence of
such costs provides a rationale for the “sand-the-wheels” hypothesis.
To discuss the “sand-the-wheels” hypothesis, we again start with an
ill-functioning bureaucracy. The positive impact of corruption on slow-
ness rests on the assumption that a civil servant can speed up an “exog-
enously” slow process. However, corrupt civil servants may cause delays
that would not appear otherwise, just to get the opportunity to extract a
bribe (Myrdal 1968). Moreover, the ability of civil servants to speed up
4 Consequences    
127

the process can be very limited when the administration is made up of


a succession of decision centers. In this case, civil servants at each stage
can have some form of veto power or some capacity to slow down a pro-
ject. Using industrial organization models, Shleifer and Vishny (1993)
show that the cost of corruption can be very high when, say, to get
an authorization for a project, many independent agents are involved
rather than only one. Bardhan (1997) reports an Indian high official as
declaring that while he could not be confident of moving a file faster,
he could immediately stop it. The increased number of transactions due
to graft may well offset the increased efficiency with which transactions
are carried out (Jain 2001). Under these circumstances, one distortion
is added to the others instead of compensating for them, which is pre-
cisely the meaning of the “sand-the-wheels” hypothesis.
At an aggregate level, the impact of corruption on the quality of civil
servants is questionable. Kurer (1993) argues that corrupt officials have
an incentive to create other distortions in the economy to preserve their
illegal source of income. For instance, a civil servant may have an incen-
tive to ration the provision of a public service just to be able to decide
to whom to allocate that service in exchange for a bribe. Similarly, a
civil servant also has an incentive to limit the access of new civil serv-
ants (especially competent ones) to key positions in order to preserve
the rent from corruption. While individual bribers can indeed improve
their own situation through perks, nothing is gained from corruption at
the aggregate level.
The argument that corruption may encourage good decisions is also
subject to doubt. There are reasons to believe that agents paying the
highest bribes are not always able to improve efficiency. Rose-Ackerman
(1997) argues that a firm may be able to pay the highest bribe simply
because it compromises on the quality of the goods it will produce if
it gets a license. Mankiw and Whinston (1986) show that entry on a
market may be beneficial for a firm but detrimental to welfare. In these
cases, entry is, in general, subject to an authorization. Although entry is
detrimental to welfare, the firm may find it profitable to pay the bribe
to get the authorization and enter the market. Finally, if the profitabil-
ity of a license is uncertain, the winner of the auction may be the more
optimistic party rather than the most efficient, a situation known as the
128    
K. Sekkat

“winner’s curse”. In these cases, corruption is not the best way to award
a license. Thus, even if the analogy between corruption and a com-
petitive auction holds, there are situations where the winner does not
enhance efficiency.
Turning to the second category of institutional deficiencies, i.e., pol-
icy options by public authorities, the argument in favor of corruption
can be counterbalanced in various respects. The argument according to
which corruption may raise both the quantity and the quality of invest-
ment is questionable. There is evidence that this may not be true for
public investment. Empirical evidence shows that higher corruption is
associated with higher public investment (Tanzi and Davoodi 1998)
and that this results in a diversion of public spending toward less effi-
cient allocations (Mauro 1998). In other words, corruption results in a
greater amount of public investment in unproductive sectors, which is
unlikely to improve efficiency and result in faster growth.
There are also grounds to doubt that corruption acts as a hedge
against risk in a politically uncertain environment. This may be true
only if corruption does not imply additional risk-taking. However, cor-
ruption is not a simple transaction. As it is illegal, the commitment
to comply with the terms of the agreement may be very weak, which
may lead to opportunism, especially on the part of the person being
bribed. As Bardhan (1997) points out, the inherent uncertainty of cor-
rupt agreements may simply make the efficiency-enhancing mechanisms
ineffective. This presumption is supported by the results obtained by
Campos et al. (1999) and Lambsdorff (2003b), who observe that the
unpredictability of corruption has an impact on investment and capital
inflows that is independent of the impact of the level of corruption. As
a result, it is likely that corruption may increase the risks associated with
a weak rule of law instead of compensating for them.

2 Evidence: Economic Effects


The conceptual analysis has shown that the core of the “greasing-the-
wheels” vs. the “sanding-the-wheels” debate is not whether corruption
always induces economic inefficiency. Instead, the concern is whether
4 Consequences    
129

corruption increases or decreases efficiency when the quality of gov-


ernance is low. In econometric terms, testing the “greasing-the-wheels”
vs. the “sanding-the-wheels” hypotheses entails testing how the qual-
ity of governance affects the impact (coefficient) of corruption on effi-
ciency. Accordingly, the usual set of explanatory variables in the growth
regression, for instance, is complemented by a corruption index, a
quality-of-governance index, and an interaction term defined as the
corruption index multiplied by the quality-of-governance index. One
strand of the empirical literature has focused on the average impact of
corruption without making such effect conditional on the quality of
governance, while another strand explicitly examines such conditional
effect. In what follows, we will discuss each in turn.

2.1 Unconditional Effects

The empirical literature has examined the average impact of corruption


on different economic variables including growth, physical and human
capital, productivity, international trade, and FDI. Mauro (1995) was
one of the first papers to investigate the issue by focusing on growth and
investment. The exercise consisted in regressing average per capita GDP
growth over the period 1960–1985 on the corruption index and con-
trol variables. A similar regression is performed for the average ratio of
investment over GDP between 1980 and 1985. The rationale for stud-
ying both growth and investment is to see whether corruption has only
a direct effect on growth or both a direct and an indirect effect through
investment.
The corruption data are those collected by Business International (BI)
for the period 1980–1983 and around 50 countries. Control variables
include measures of institutional efficiency, political stability, bureau-
cratic efficiency, ethnolinguistic fractionalization, per capita GDP in
1960, education in 1960, and population growth.
The results show that corruption lowers growth independently of its
effect on investment (direct effect). It also depresses private investment,
thereby reducing economic growth (indirect effect). The negative associ-
ations between corruption and investment and between corruption and
130    
K. Sekkat

growth are significant, both in statistical and in economic terms. For


instance, if Bangladesh were to reduce its corruption to Uruguay’s level,
its investment ratio would rise by almost five percentage points and its
yearly GDP growth rate would rise by over half a percentage point.
Ali and Isse (2002) lend further support to the negative impact of
corruption on economic growth. They address possible bias in the
preceding estimations, namely the existence of a reverse causality
between growth and corruption. The concern is that if growth affects
corruption, the estimated impact of corruption on growth would be
biased and even spurious. The analysis uses a sample of 57 countries
and the average corruption score for the 1990s from Transparency
International (TI) as a dependent variable. Besides economic growth,
explanatory variables include education, judicial efficiency, the size of
government, political and economic freedom, foreign aid, ethnicity, and
the type of political regime. To address the possible bias, the authors use
a 2SLS approach and ethnolinguistic fractionalization as an instrumen-
tal variable. They also use the Granger causality test, which determines
the direction of the causal effect.
Both the 2SLS and the Granger causality approaches reject the
hypothesis that per capita GDP growth causes corruption. In contrast,
corruption causes the GDP growth rate. Other results are that corrup-
tion is negatively and significantly correlated with the level of educa-
tion, judicial efficiency, and economic freedom. It is positively and
significantly correlated with foreign aid and the size of government.
Mo (2001) complements Mauro (1995) by investigating other chan-
nels through which corruption affects growth. The channels under con-
sideration include investment (ratio over GDP), human capital, and
political instability. A preliminary investigation having shown that these
three variables affect growth, the main analysis focuses on the impact of
corruption on each of these variables. Accordingly, each of these vari-
ables is explained in terms of corruption and various control variables.
The measure of corruption is obtained from TI, and the other explan-
atory variables are population, an index of political rights, and the
ratio of public investment over GDP. All variables are averages over the
period from 1970 to 1985 and cover 45 countries.
4 Consequences    
131

The results of the ordinary least squares estimation suggest that a one-
unit increase in the corruption index reduces the growth rate by 0.545
percentage points. The most important channel through which cor-
ruption affects economic growth is political instability, which accounts
for about 53% of the total effect. The other channels include the level
of human capital and the share of private investment in GDP. Using
the 2SLS estimation generates qualitatively similar results but the total
effect of corruption and the effects of the transmission channels are
larger in absolute terms.
Tanzi and Davoodi (1998) add to the literature by examining
another channel of the impact of corruption on growth, namely public
investment. Their empirical analysis distinguishes between the impacts
on the quality and on the quantity of public investment. It uses the
indexes of corruption from Business International (BI) and from the
International Country Risk Guide (ICRG) for 68 countries averaged
over the 1980–1983 period. The quantity of public investment is meas-
ured as a percentage of GDP. The quality of public investment is prox-
ied using the following indicators:

1. Paved roads in good condition as a percentage of total paved roads


2. Electric power system losses as a percentage of total power output
3. Telecommunication faults per 100 mainlines
4. Water losses as a percentage of total water provision
5. Railway diesels in use as a percentage of total diesel inventory.

Control variables are real per capita GDP, the ratio of government reve-
nue to GDP, and the ratio of public investment to GDP.
The results show that high corruption is associated with a high quan-
tity of public investment but with low government revenue. More
importantly, high corruption appears to be associated with low-quality
infrastructure. These results are in line with our conceptual discussion.
Corrupt governments prefer to fund big projects (“white elephants”)
because they are more visible to citizens and also because they offer
more opportunities for corrupt deals. In contrast, spending on opera-
tion and maintenance is given a lower priority, which results in a deteri-
oration in the quality of infrastructure.
132    
K. Sekkat

Habib and Zurawicki (2001) refine the analysis of the effect of cor-
ruption on investment by distinguishing domestic and Foreign Direct
Investment (FDI). Based on a sample of 111 countries over 1994–
1998, domestic investment is calculated as the difference between FDI
and total gross capital formation in the country. Measures of corrup-
tion are the Corruption Perceptions Index (CPI) and the ICRG’s index.
Control variables are population, GDP per capita, annual GDP growth,
exports plus imports as a percentage of GDP, inflation, and the political
risk index from ICRG.
The findings confirm the negative effects of corruption on invest-
ments and its two components. The degree of international openness
and the political stability of the host market seem to moderate the influ-
ence of corruption. There is, however, an important difference between
the two components of investment. The impact of corruption on
domestic investment is substantially weaker than the impact on FDI.
One explanation is that local businesses are more used to dealing with
corruption and better equipped to handle it than foreigners. Foreign
investors are at a relative disadvantage in this respect. The higher impact
on FDI implies that corruption not only reduces productive capital but
also limits technological progress since FDI is, generally, associated with
substantial positive technological spillovers from foreign to domestic
firms.
Wei (2000a) supports these concerns about the impact of corruption
on FDI. The analysis is based on bilateral stocks of FDI from 12 source
countries to 45 host countries. FDI is explained in terms of three meas-
ures of corruption: the ICRG, TI, and BI indexes. Control variables
include GDP, population, a dummy for linguistic ties, the adult literacy
ratio, and host countries’ tax rates on foreign corporations.
The results show that the host country’s tax rate and corruption both
significantly deter FDI. The coefficients for the tax rate and corruption
measures remain negative and statistically significant irrespective of the
measure of corruption, the additional explanatory variables, and the
estimation method. Using the estimated coefficients, the author finds
that a one-unit increase in the corruption index is equivalent to a rise
in the tax rate of 7.53 percentage points. For instance, an increase in
corruption level from that of Singapore to that of Mexico has the same
4 Consequences    
133

negative effect on inward foreign investment as raising the tax rate by


over 50 percentage points.
Shifting attention from the impact of corruption on factor accumu-
lation to its impact on productivity as a source of growth, Lambsdorff
(2003a) analyzes a sample of 69 countries in 2000. Productivity is
measured by the ratio of GDP to capital stock, while corruption is
measured using the 2001 CPI. Control variables are capital stock per
capita, exports of fuels and minerals, the ratio of the deflators of invest-
ment and GDP, openness, secondary enrolment, and dummies for
Africa and Asia. The author found that the absence of corruption is pos-
itively associated with productivity. A one-point increase in corruption
on a scale of 0–10 lowers productivity by 2%. Improving the corrup-
tion score by six points, that is from Tanzania’s score to the UK’s score,
increases productivity by more than 10%. In the sample, the capital
stock is, on average, twice the value of GDP. The income level would
thus rise by about 20%.
Instead of the productivity level, Olson et al. (2000) investigate the
impact on productivity growth. The sample includes 58 countries for
the years 1960–1987. Average TFP growth over the period of obser-
vation is used as the dependent variable and explained in terms of the
ICRG index of corruption for the year 1982. Control variables are the
black market premium, the share of government consumption in GDP,
GDP per capita in 1960, secondary enrolment in 1960, and regional
dummies. The main finding is that the coefficient of corruption is sig-
nificant and implies that corruption reduces the growth rate of pro-
ductivity. For instance, if Haiti had had the same corruption as Hong
Kong, its productivity would have grown by 1.49 percentage points
faster per annum, which is a substantial increase.
One major source of productivity growth is innovation, which
can also be affected by corruption. Mahagaonkar (2008) uses African
firm-level data to investigate this issue. The data come from the World
Bank’s Productivity and the Investment Climate: Private Enterprise
Survey, which took place between 2002 and 2004. The data of Benin,
Madagascar, Mali, Mauritius, Tanzania, Zambia, and South Africa
were included in the study, giving a total of 3477 firms. A distinction
is made between four innovative activities: Product Innovation, Process
134    
K. Sekkat

Innovation, Marketing Innovation, and Organizational Innovation.


The dependent variables are dummies pertaining to each type of inno-
vation and are based on the response to a question about whether the
firm performs the type of innovation under consideration. Explanatory
variables are corruption, reinvested profits, firm size, client technology,
supplier technology, in-house technology, foreign ownership, financial
access problems, and country effects. All variables are drawn from the
survey responses. In particular, the corruption measure is the percentage
of sales used to give gifts or informal payments to public officials to “get
things done”.
The analysis led to the conclusion that an increase in corruption
negatively affects the likelihood of product innovation and the likeli-
hood of organizational innovation. No significant effect of corruption
on process innovation was found, while corruption appears to increase
the likelihood of marketing innovation. Regarding the other explana-
tory variables, reinvested profits increase the likelihood of product inno-
vation while problems with access to finance decrease such likelihood.
As expected in many developing countries, the findings show that large
firms are mainly responsible for the increase in the likelihood of product
innovation. Similar results emerge for process innovation.
We now turn to the demand side determinants of growth. As
explained above, we will focus on the external component, namely
trade. Anderson and Marcouiller (2002) investigate whether corrupt
officials reduce trade. The measure of corruption concerns the import-
ing country and is based on the World Economic Forum’s (WEF) 1997
Executive Survey. Participants in the WEF survey were asked to assign
a score ranging from 1 (strongly disagree) to 7 (strongly agree) to the
statement: Irregular additional payments are not common in business
and official transactions.
The dependent variable is the 1996 bilateral import expendi-
tures of 48 countries. In addition to corruption, the explanatory var-
iables include population, GDP, distance from capital city to capital
city, unweighted average tariffs and dummy variables to capture shar-
ing a common border, common language, or common membership of
ASEAN, the EU, Mercosur, or NAFTA.
4 Consequences    
135

The findings are that a 10% rise in a country’s corruption index leads
to a 5% decrease in its import volumes. Costs associated with corrup-
tion appear to be a serious impediment to countries’ trade. For example,
if the seven Latin American countries in the sample (Argentina, Brazil,
Chile, Colombia, Mexico, Peru, and Venezuela) had similar corrup-
tion indexes to the mean of the members of the European Union, Latin
American import volumes would be 30% higher. Interestingly, lowering
Latin American tariffs to the levels applied by the USA would have a
similar effect, increasing trade by 35%. A much larger increase (51%) in
GDP would be necessary to generate a comparable increase in imports.
While Anderson and Marcouiller (2002) focus on corruption in the
importing country, Méon and Sekkat (2004) investigate the effects of
corruption in the exporting countries. The analysis uses data on total
manufactured exports from 40 countries over the 1990s. The ratio of
manufactured exports to GDP is explained in terms of corruption, the
real effective exchange rate, the average GDP growth rate of trading
partners, and investment in the manufactured goods sector. The meas-
ures of corruption are the CPI and World Bank (WB) indexes.
The estimated coefficients of corruption always have the expected
signs and are significant. A reduction in the level of corruption results in
an increase in manufactured exports. The analysis shows that the results
are robust to different econometric approaches and institutional indica-
tors. Further calculations show that if, say, Morocco’s corruption index
improved to the level of the Swiss one, its manufactured exports ratio
would increase by 18.45%. Morocco’s manufactured export ratio would
then have been 12.32% instead of 10.4% in 1997, i.e., a ratio similar to
Poland’s.
Musila and Sigué (2010) consider corruption levels in exporting and
importing countries simultaneously. The analysis is based on a gravity
model using annual data over the period 1998–2007 for 47 African
countries as importers and 180 exporting countries. The CPI is the
measure of corruption. The additional explanatory variables are the tra-
ditional gravity model variables such as the GDP of trading partners,
the distance between partners, and dummies for the existence of a com-
mon border, common language, common currencies, or a free trade
area.
136    
K. Sekkat

The estimated coefficients of corruption have negative signs and


are statistically significant. Corruption in both importing and export-
ing countries negatively affects trade. This implies that the export and
import trade of African countries would increase not only if African
countries became cleaner but also if their trading partners do too. The
estimates suggest that if a country with a CPI of 2.8 (African aver-
age) improved to 5.9 (level of Botswana), its exports to Africa would
improve by at least 15%.
Corruption not only reduces the volume of international trade,
but also distorts its geographic distribution. In other words, countries
that are more inclined to pay bribes trade more with corrupt coun-
tries than do countries that are less inclined to pay bribes. Lambsdorff
(1998) investigates the validity of this statement using data on the 19
biggest exporting countries and the 87 biggest importing countries for
the four-year period 1992–1995. In order to examine whether there is
a tendency for some countries to export to corrupt markets, a separate
equation for each exporting country is estimated. The level is deter-
mined by the 1996 CPI. The rest of the explanatory variables are tradi-
tional gravity model variables similar to those mentioned above. Testing
whether the coefficients of the corruption index are equal for two
given countries makes it possible to identify which countries are more
inclined to export to corrupt countries.
The results reject the null hypothesis of equal export behavior for
many pairs of countries. For instance, the test for Malaysia and the
UK implies that the UK is significantly more inclined than Malaysia
to export more to corrupt countries. Similar results were found for
Germany as compared to Sweden or South Korea in comparison
with Australia. For the rest, it appears that Belgium, France, Italy,
the Netherlands, and South Korea tend to export more to corrupt
countries.
Méon and Sekkat (2008) complement the above analysis, which
looks at the geographic composition of trade, by examining the impact
of corruption on the goods composition of trade. Specifically, they
examine whether the impact of corruption differs for manufactured
and non-manufactured exports. The distinction is important because
all exports are not equivalent in terms of development and growth. In
4 Consequences    
137

particular, the development economics literature suggests that manu-


factured exports are more conducive to growth than non-manufactured
exports.
Using panel data for 60 countries over 1990–2000, a separate equa-
tion is estimated using each type of exports as a dependent variable. The
corruption indicator comes from the WB, and control variables are the
real effective exchange rate and the GDP growth rates of the country’s
partners. Two estimation methods are used: ordinary least squares and
two-stage least squares.
The results suggest that corruption chiefly hurts a country’s capacity
to export manufactured goods. Accordingly, an improvement in insti-
tutional quality should result in an increase in manufactured exports.
Exports of non-manufactured goods seem to be related to corruption
in the opposite way. However, the results are sensitive to the estimation
method.

2.2 Conditional Effects

Almost all the studies that examine the effects of corruption conditional
on certain factors (quality of bureaucracy, rule of law, or level of devel-
opment) developed in the framework of the “greasing-the-wheels” vs.
the “sanding-the-wheels” arguments discussed above. The debate con-
cerns the extent to which corruption may be beneficial in a second-best
world because of the distortions caused by the ill-functioning of other
aspects of the economic environment. For instance, an inefficient
bureaucracy constitutes an impediment to investment that some speed
or grease money may help to circumvent. For the sake of clarity, we will
start with microeconomic studies before turning to macroeconomics.
One of the early empirical investigations of this issue is Kaufmann
and Wei (1999). Using data from three World Enterprise Surveys, the
authors examine the relationship between bribe payment and manage-
ment time wasted with bureaucrats. The dependent variable is the time
spent by managers negotiating with bureaucrats. It corresponds to the
response to the question: “On a one-to-seven scale, whether the senior
management of your company spends more or less than 30 percent of
138    
K. Sekkat

its time dealing with government bureaucracy”. The main explanatory


variable is corruption and corresponds to the response to the question:
“On a one-to seven scale, rate the extent of irregular, additional pay-
ments connected with imports and exports permits, business licenses,
exchange controls, tax assessments, police protection or loan applica-
tions”. Control variables include regulatory burden, regulatory discre-
tion, firm size, foreign investor and country and sector dummies.
The results show that the coefficient associated with corruption is
positive and statistically significant. Paying bribes does not reduce the
time spent with bureaucracy. On the contrary, firms that pay more
bribes also spend more time negotiating with bureaucracy, which is
inconsistent with the “greasing-the-wheels” hypothesis. Large or for-
eign-owned firms waste less time negotiating with government officials.
De Rosa et al. (2015) use the 2009 Business Environment and
Enterprise Performance Survey (BEEPS) data for the economies of
Central and Eastern Europe and the CIS to investigate the relationship
between corruption, red tape, and productivity. Specifically, the authors
examine whether corruption reduces the negative effect of red tape
on productivity. The dependent variable (productivity) is explained in
terms of corruption, red tape, an interaction term for the two variables,
and a set of firm (size, age, exporter, innovator, and foreign-owned),
industry, and country characteristics. The extent of red tape is proxied
by the percentage of time spent by senior management negotiating with
officials in order to obtain a favorable interpretation of the regulations.
Corruption is a dummy which equals 1 if the firm replies that it is fre-
quent, usual, or always common to pay some irregular additional pay-
ment or gifts to “get things done”. The interaction term shows whether,
when regulation is overly restrictive, corruption helps entrepreneurs
to negotiate with bureaucrats and leads to a less negative impact on
productivity.
The results of the analysis show that the interaction term is not sig-
nificant while corruption has a statistically significant negative effect
on productivity. Accordingly, the results lend no support to the “greas-
ing-the-wheels” argument. Corruption is not a second-best option to
achieve higher productivity levels by helping firms to circumvent bur-
densome regulatory requirements.
4 Consequences    
139

Dreher and Gassebner (2013) study another aspect of the “greas-


ing-the-wheels” hypothesis by investigating whether the impact of
regulations on entrepreneurship depends on corruption. In other
words, they test whether corruption reduces the negative impact of
regulations on entrepreneurship. The data are drawn from the Global
Entrepreneurship Monitor (GEM), which contains survey-based annual
data on early-stage entrepreneurial activity. The sample covers 43 coun-
tries for the period 2003–2005. The dependent variable is defined as
the percentage of people in the population aged between 18 and 64
who have taken steps toward creating a new business in the past year.
To measure corruption, the CPI and WB indexes are used. To proxy
the severity of regulation, four variables, drawn from the WB doing
business dataset, are combined. These are the number of procedures
required to start a new business, the number of days required to start
a new business, the costs of starting a new business, and the minimum
capital required to start a new business. Again, the “sanding-the-wheels”
versus the “greasing-the-wheels” hypotheses are tested using an inter-
action between the severity of regulation and corruption. Control var-
iables include lagged GDP per capita, the square of lagged GDP per
capita, and a dummy for former communist countries.
Preliminary results show that some regulations matter for entre-
preneurial activity. Specifically, the number of procedures required to
start a business and the minimum capital requirements is detrimental
to entrepreneurship. In contrast, the number of days required to start
a new business and the out-of-pocket costs required to start a business
do not appear to be obstacles to entrepreneurial activity. In the absence
of any costs to starting a business, corruption has a negative effect on
entrepreneurship. Likewise, in the absence of corruption, the costs of
starting a business handicap entrepreneurship.
Since the main focus here is on the “greasing-the-wheels” vs. the
“sanding-the-wheels” hypotheses, the coefficients of the interaction
term deserve special attention. These coefficients are significant and
positive, implying that corruption reduces the impact of the costs of
doing business on entrepreneurship. This fits with the “greasing-the-
wheels” hypothesis: Corruption facilitates firm entry in highly regulated
economies.
140    
K. Sekkat

While at the microeconomic level corruption might appear to have


positive or negative impacts in the presence of certain other institutional
imperfections, the question of the impact on the whole economy, that
is, once all effects have operated, remains unanswered. Accordingly,
the above analyses need to be complemented by macroeconomic stud-
ies which take account of all the effects on the economy. Wei (2000b)
addresses this concern by examining whether corruption tends to mit-
igate the effects of tax rates and capital controls on aggregate bilateral
FDI.
The dependent variable is bilateral stocks of FDI in 1991 from 14
major source countries to 45 host countries. The list of source countries
includes the seven largest foreign investors in the world.1 The explan-
atory variables of interest are the host country’s tax rates, corruption,
capital control measures and interaction terms between corruption and
tax rates, and capital controls, respectively. The author uses two capital
control measures and two corruption measures. One measure of capi-
tal control comes from Business International (BI) while the other is a
dummy based on the IMF’s Annual Report on Exchange Arrangements
and Exchange Restrictions. Corruption measures are the BI and the
TI indexes. Control variables include GDP, bilateral distance and indi-
cators of restrictions on inward FDI, on joint ventures with domestic
firms, on bids on public sector projects, and on corporate control rights.
Disregarding the interaction terms, capital control, tax rates, and
corruption have negative and statistically significant coefficients. The
coefficient of the interaction term with corruption is not significant
irrespective of the measure of corruption. This implies that there is no
statistical support for the “greasing-the-wheels” argument. Regarding
capital control, the coefficient of the interaction with corruption is pos-
itive and statistically significant with one measure of capital control (BI)
and non-significant with the other (IMF). Thus, support for the view
that corruption reduces the incidence of taxation on FDI is weak. In
sum, the data do not support the “greasing-the-wheels” argument.

1The USA, Japan, Germany, the UK France, Canada, and Italy.


4 Consequences    
141

While De Rosa et al. (2015) examine at the microeconomic level


the “greasing-the-wheels” vs. the “sanding-the-wheels” hypotheses from
the perspective of productivity, Méon and Weill (2010) address a simi-
lar question at the macroeconomic level. The study analyzes the inter-
action between aggregate efficiency, corruption, and other dimensions
of governance using a panel of 54 developed and developing countries
over the period 1994–1997. There are three measures of corruption:
the WB index, the CPI, and a corruption index used by Wei (2000a).2
The other institutional quality indicators are drawn from the WB and
concern government effectiveness, lack of violence, regulatory burden,
rule of law, and voice and accountability. Finally, efficiency is measured
using the technical efficiency approach developed by Battese and Coelli
(1995). An interaction term between corruption and the other quali-
ty-of-governance indicators is incorporated in the estimation.
Disregarding the interaction terms, the results show that aggregate
efficiency rises with the quality of governance as measured by the WB
indicators. Control of Corruption Index leads to the same qualitative
results. This implies that lower corruption is associated on average with
greater efficiency. The coefficient of the interaction terms between cor-
ruption and other facets of governance is either positive or insignificant.
The results provide some support for the “greasing-the-wheels” hypoth-
esis but the support is weak since the conclusion depends on the other
indexes of quality of governance.
Another study of the “greasing-the-wheels” vs. the “sanding-the-
wheels” hypotheses at the macroeconomic level is Méon and Sekkat
(2005). The authors examine the impact of corruption on growth and
investment in the presence of weaknesses in other aspects of governance
using a sample of around 70 countries between 1970 and 1998. The
dependent variables are per capita GDP growth and the investment to
GDP ratio. The corruption data and the other quality-of-governance
indicators are the same as in Méon and Weill (2010) presented above.

2Wei’s index is an extension of the corruption index published in the World Economic Forum’s
Global Competitiveness Report 1997. To increase the coverage of his dataset, Wei (2000a) filled
the gaps left by that first index with the information provided by the World Bank’s 1997 World
Development Report.
142    
K. Sekkat

Control variables are the initial per capita income, the initial level of
schooling, the average population growth rate over the period, the
average ratio of investment to GDP over the period, and the degree
of openness of the economy. The relevant interaction terms are also
introduced.
Like previous studies, the findings show a negative effect of corrup-
tion on both growth and investment. Unlike previous studies, however,
corruption has a negative impact on growth independently of its impact
on investment. These impacts are, however, different depending on
the quality of governance. They tend to worsen when indicators of the
quality of governance deteriorate. Specifically, corruption slows growth
down even more in countries suffering from weak rule of law and inef-
ficient government, even when one controls for investment. Moreover,
it is found that weak rule of law, inefficient government, and politi-
cal violence also tend to worsen the negative impact of corruption on
investment. Overall, the results strongly reject the “greasing-the-wheels”
hypothesis in favor of the “sanding-the-wheels” one. They imply that
reducing corruption would be more profitable in countries where other
aspects of governance are poor, which stands in sharp contrast to the
opinion of those who view corruption as a lubricant.
While not dealing with the “greasing versus sanding-the-wheels”
hypothesis per se, Aidt et al. (2008) give strong support to the idea
that the relationship between corruption and growth is nonlinear.
They develop a conceptual framework where corruption is treated as
an endogenous variable which depends on the quality of political insti-
tutions. The model considers two distinct governance regimes. In one
regime, institutions are of a sufficiently high quality to allow citizens to
use the threat of ruler’s replacement to reduce corruption. In the other
regime, institutions are deficient and citizens cannot use such threat.
The empirical model is estimated using a sample of around 70 coun-
tries drawn from all continents. Two measures of corruption are used:
the CPI from Transparency International and the CCI from the World
Bank. The measure of the quality of political institutions is the “voice
and accountability” index from the World Bank. Control variables
include investment share, population growth, gross enrolment in pri-
mary education, the initial level of GDP, regional effects, and whether a
4 Consequences    
143

country belongs to the common law tradition. The estimation method


is the GMM with the index of ethnolinguistic fractionalization and the
age of democracy as instruments.
The results are that corruption has a substantial negative impact
on growth in the regime with high-quality political institutions.
Corruption has no impact on growth in the regime with low-qual-
ity institutions. A one-point reduction in corruption increases growth
in the short run by 0.5–0.6 percentage points and by 0.37–0.39 in the
long run for countries in the good institutions regime. However, the
authors note that while their analysis confirms the importance of allow-
ing for nonlinear effects in the relation between corruption and eco-
nomic growth, the result is not a support for the “greasing the wheels”
hypothesis. This hypothesis implies that corruption improves efficiency
in the presence of weak institution while the paper finds that corruption
has no impact on growth in the regime with weak institutions.

3 Evidence: Non-economic Effects


Like other sciences, economics ultimately seeks to improve human
well-being. By enhancing growth, the fight against corruption affects
only one necessary condition of human well-being. Other dimensions
such as poverty, health, education, or trust also need to be improved
for human well-being to be enhanced further. Akçay (2006) studies the
impact of corruption on the Human Development Index (HDI) as cap-
tured by the three following indicators: life expectancy at birth, educa-
tional attainment, and real GDP per capita in purchasing power parity
(PPP).
The indicators have equal weight and are scaled to vary between 0
and 1, with 0 indicating the lowest level of human development. The
analysis is conducted for 63 countries in 1998. The control variables are
the urbanization rate, economic freedom, and democracy. Corruption is
assessed on the basis of the CPI, the International Country Risk Guide
(ICRG) index, and the WB index.
The empirical analysis suggests that more corrupt countries tend to
have lower levels of human development irrespective of the measure of
144    
K. Sekkat

corruption used. Using the CPI, for instance, shows that a one-point
increase in corruption reduces human development by 0.013 points.
With the ICRG and the WB indexes, a one-point increase in corruption
reduces human development by 0.048 and 0.041 points, respectively.
Instead of the impact of corruption on the HDI as discussed above,
Li et al. (2000) examine the impact of corruption on income distribu-
tion. They explain the GINI coefficient of income distribution of 48
countries over the period 1982–1994 in terms of real per capita GDP
growth, the ICRG corruption index, the lagged value of years of pri-
mary schooling, the financial development of the country, GDP, and
the initial distribution of assets as measured by the initial land GINI
coefficient. To allow for a possible nonlinear relationship between cor-
ruption and GINI, the former is introduced among the explanatory var-
iables in level and squared form.
The results show that corruption alone explains a large proportion of
the GINI differential between the groups of developing and industrial
countries. However, corruption and income inequality are not mono-
tonically related. Corruption affects the GINI coefficient in an inverted
U-shaped way. Inequality is low when levels of corruption are low. It
starts increasing with corruption until a certain point, after which ine-
quality decreases as corruption increases. In countries with more ine-
quality in asset allocation, corruption also raises inequality. In Latin
America, corruption has distinct effects: It has a greater impact on ine-
quality relative to other continents. In particular, when government
spending is higher, corruption is more harmful for growth.
The above study is based on a sample which contains virtually no
African countries. Yet, Africa is a continent with high corruption and
high income inequality. Accordingly, it is clearly advisable to examine
the same issue using African data. This is accomplished by Gyimah-
Brempong (2002), who uses annual data for a sample of 21 African
countries over the period 1993–1999. The measure of income inequal-
ity is the GINI coefficient, while the measure of corruption is the CPI.
In addition to corruption, the GINI coefficient is explained in terms of
the growth rate of income, the level of per capita income, government
consumption, and education.
4 Consequences    
145

The estimated coefficient of corruption is negative, relatively large


and significant. The result is robust to estimation methodology. A one-
unit increase in corruption is associated with an increase of between
four and seven units in the GINI coefficient of income inequality.
Alternatively, a standard deviation decrease in corruption is associated
with a decrease of between 7.3 and 12.3 units in the GINI coefficient.
In addition to this direct effect, corruption seems to be correlated with
income inequality through other channels. For instance, the results
show that an increased growth rate of per capita income decreases the
GINI and that corruption has a large negative effect on economic
growth. Taken together, the two results highlight one of the indirect
channels alluded to. More importantly, a strand of the economic devel-
opment literature suggests that income inequality negatively affects eco-
nomic growth. Combined with the results of the study, this suggests the
risk of the emergence of a vicious circle in which corruption increases
inequality, which in turn decreases economic growth, which feeds back
into income inequality. Overall, the combined effects suggest that cor-
ruption hurts the poor more than the rich in African countries.
Corruption not only affects the weakest class of society through
inequality and poverty but also through access to numerous public
services such as health care and education services. To highlight these
effects, Huang (2008) conducts an empirical examination of the rela-
tionship between corruption and educational outcomes, using a sam-
ple of 50 countries. The study focuses on two educational outcome
measures, which are used as dependent variables. The first outcome
concerns the quality of education and is assessed on the basis of an
Educational Performance Index (EPI). The EPI is a composite index
derived from each country’s average science and mathematics scores
in the 2003 Trends in International Mathematics and Science Study
(TIMSS). Educational quantity is measured by UNESCO’s School Life-
Expectancy (SLE) indicator. The explanatory variable of interest is the
CPI, and control variables are average size of households, the level of
political and civil freedom, and the level of democracy in a country.
Correlation analysis indicates that the CPI is significantly and nega-
tively correlated with the EPI (−0.43) and the SLE (−0.75), implying
that countries with higher CPI scores have lower EPI and SLE scores.
146    
K. Sekkat

Regression analyses, which control for the effect of other variables, con-
firm the significant negative association between corruption and the EPI
and SLE. On average, a one-point increase in the CPI decreases the EPI
by 11.5% of its standard deviation. In the case of the SLE, a one-point
increase in the CPI decreases the SLE by 25% of its standard deviation,
or approximately eight months.
These results here are in line with Mauro (1998) who, in examin-
ing the impact of corruption on government expenditure, finds a neg-
ative and significant relationship between corruption and government
expenditure on education. The paper uses the ICRG index of corrup-
tion (1982–1995 average) to explain the composition of government
expenditure (average 1970–1985). Control variables are GDP per cap-
ita 1980, the share of population aged between 5 and 20, and the BI
Political Stability Index for 1980–1983.
Jain (2002) examines the impact of corruption on an important
dimension of human capital, namely the provision of health care. Such
provision is proxied using three indicators as dependent variables. These
are the rates for immunization, births attended by health staff, and child
and infant mortality. The dependent variables are explained in terms
of three corruption indexes (ICRG, CPI, and the WB) and per capita
income, public health spending, average years of education, females
aged 15 or older, the dependency ratio, and urbanization in a sample of
100 countries over the period 1985–1997
The empirical analysis shows that a high level of corruption has
adverse consequences for child and infant mortality rates and for the
percentage of low-birthweight babies in total births. In particular, child
mortality rates in countries with high corruption are about one-third
higher than in countries with low corruption; infant mortality rates
and percentages of low-birthweight babies are almost twice as high. The
results are robust to different estimation methods and controls.
The preceding findings are confirmed in the study by Azfar and
Gurgur (2008). They focus on the Philippines and use data from a sur-
vey undertaken in the spring of 2000 and covering 19 provinces and
80 municipalities from 11 regions. The results indicate a significant and
negative effect of corruption on the quality of health services. Moreover,
corruption affects health outcomes differently in rural versus urban
4 Consequences    
147

areas. Rural areas suffer from longer wait times at public health clin-
ics, late immunization of infants, and less satisfaction with public health
services.
Klomp and De Haan (2008) explore both the direct effect of cor-
ruption on the health of individuals and the possible indirect effect
through income for instance. Examining 101 countries over the period
2000–2005, the analysis uses the ICRG indicators of corruption for
2003, bureaucratic quality, and law and order as well as Freedom of the
World data from the Fraser Institute. A synthetic indicator of individual
health and another for the health care sector are constructed for 2006
using information from the WHO and the World Bank. Control varia-
bles include GDP per capita in 1980, income inequality, primary school
enrolment, secondary school enrolment, investment as a share of GDP,
and the share of population living in rural areas.
It appears that none of the good governance indicators has a direct
effect on the health of individuals. They have, however, a positive effect
on the health care sector. A 1% increase in the quality of governance
leads to an increase of 0.28% in the quality of the health care sector
which, in turn, increases the health of individuals by about 0.23%.
Moreover, the quality of governance has another indirect impact on
health via its positive impact on income. Through income, a 1%
increase in the quality of governance leads indirectly to an increase in
the health of individuals of about 3.54%. It follows, therefore, that the
indirect effect of governance through income is the most important
channel through which governance can help to improve health.
Besides the effects on individuals’ health, education, or income, cor-
ruption impacts other, sometimes unsuspected, aspects of people’s life.
These include increased vulnerability, unsafe behavior, deforestation, con-
fidence in public institutions, regime legitimacy, and voter attendance
Starting with vulnerability, Hunt (2007) uses a cross-country sample
and another sample which focuses on Peru to investigate whether crime
victims are more likely to bribe public officials than non-victims. The
idea is that misfortune might increase a victim’s demand for public ser-
vices and increase bribery because a desperate or vulnerable victim sees
it as the only way to obtain reparation. Powerful victims can more easily
use their large networks of “friends” or “relatives” to obtain reparation.
148    
K. Sekkat

The analysis is based on the International Crime Victims Survey


(ICVS, 1992–2001) and the Peruvian Household Survey (ENAHO).
The ICVS, conducted for the United Nations Interregional Crime and
Justice Research Institute, provides individual-level data from 37 tran-
sition, middle- or low-income countries. It asks the question: “In some
countries, there is a problem of corruption among government or public
officials. During the 1990s, has any government official, for instance a
customs officer, a police officer or inspector in your country asked you,
or expected you to pay a bribe for his or her services?” The ENAHO is
conducted yearly by Peru’s national statistical agency (INEI). In 2002
and 2003, the ENAHO asked households having used one of 21 differ-
ent types of officials or institutions whether an official asked for a bribe,
whether the respondent felt obliged to make such a payment, whether
he/she made such a payment voluntarily, or refused to make such a pay-
ment and the amount paid if he/she paid.
A probit specification is used for each sample, where the depend-
ent variable is whether a given individual in a given country has paid
a bribe. The explanatory variable of interest is a dummy indicating
whether the individual was a crime victim. Control variables are the
respondent’s income quartile, city size, and indicators of the size of the
household.
The findings confirm that victims of crime are substantially more
likely to bribe than others. Using the ICVS sample, crime victims are
between 2.9 and 8.2 percentage points more likely to pay bribes than
similar non-victims. In Peru, crime victims are 6.3 percentage points
more likely to pay a bribe than similar non-victims. In contrast to the
likelihood of paying a bribe, the amount of the bribe is independent of
the fact of being a victim. These results hold even after controlling for a
large number of individual and household characteristics and are con-
firmed in the case of other misfortunes. For instance, the bribery rate
increases by 2.2 percentage points for a victim of job loss and by 3.8
percentage points for the death of the household’s income earner. The
effects are strongest with the police and strong with the judiciary.
Bertrand et al. (2007) investigate whether corruption produces
unsafe drivers. They collect detailed micro-data on 822 driver’s license
applicants in New Delhi. The analysis is structured around five
4 Consequences    
149

questions: Do people pay bribes to get a license? Can corruption be


used to speed up the process of getting a license? Do bad drivers use
bribes to get a license? Do bureaucrats raise hurdles to extract bribes?
Finally, how does corruption take place?
Participants were randomly assigned to one of three groups: bonus,
lesson, and comparison groups. Participants in the bonus group
were offered a financial reward if they could obtain their license fast.
Participants in the lesson group were offered free driving lessons.
Finally, the comparison group was composed of applicants who were
simply asked to participate in the survey. A surprise driving test was
organized after participants had obtained their licenses.
The authors found that those who want their license faster (e.g., the
bonus group) get it 40% faster and at a 20% higher rate, implying that
bureaucracy responds to individual needs. However, members of this
group do not learn to drive safely. In fact, 69% of them were rated as
“failures” on the surprise driving test. Accordingly, the bureaucracy does
not seem concerned with the public interest. Members of the lesson
group have superior driving skills. However, they are only slightly more
likely to obtain a license than the comparison group and far less likely
than the bonus group. Further investigation showed that bureaucrats
arbitrarily fail drivers at a high rate during the driving exam irrespec-
tive of their ability to drive. As a result, individuals agree to bribe the
bureaucrat in order to avoid taking the exam. In other words, bureau-
crats create red tape to extract bribes, and this corruption undermines
the very purpose of the driving regulation.
Deforestation, a major global issue, is not immune to corruption.
In its 2001 report, the UN Food and Agriculture Organization (FAO)
stated that corruption is one of the main causes of deforestation.
Corruption by forestry officials takes different forms: approval of ille-
gal contracts with private enterprises, illegal sale of harvesting permits,
under-declaring volumes cut in public forests, underpricing of wood in
concessions, harvesting of protected trees, and smuggling of forest prod-
ucts across borders.
Koyuncu and Yilmaz (2009) explore the issue of deforestation
and corruption using the CPI, the ICRG index, and the Business
Intelligence Index. The dependent variable is measured as the
150    
K. Sekkat

percentage change in forest surface in each country. Control variables


are rural population growth, permanent cropland (as a % of land area),
and GDP. The sample is composed of 100 countries for the periods
1980–1990, 1990–1995, and 1990–2000.
Irrespective of the indicator of corruption, a highly statistically signif-
icant positive association was found between the corruption level in a
country and the deforestation rate. The findings are robust to the intro-
duction of other determinants of deforestation and hold across all peri-
ods and with different estimation methods.
Anderson and Tverdova (2003) shift the concern to the political
arena, namely attitude toward government. They examine whether cit-
izens in countries with higher levels of corruption express more negative
evaluations of the performance of the political system and exhibit lower
levels of trust in civil servants. They use individual-level data from the
International Social Survey Program (ISSP) of 1996 for 16 developed
and transition economies.
The analysis distinguishes between citizens’ attitude toward a coun-
try’s government and attitude toward other institutions. The former is
based on the responses to the question: “All in all, how well or badly do
you think the system of democracy in your country works these days?”
The possible answers were: (i) It works well and needs no changes; (ii)
it works well, but needs some changes; (iii) it does not work well and
needs a lot of changes; and (iv) it does not work well and needs to be
completely changed. Attitudes toward other institutions are based on
the responses to the question: “Most civil servants can be trusted to
do what is best for the country”. Respondents could answer “strongly
agree”, “agree”, “neither agree nor disagree”, “disagree”, and “strongly
disagree”.
The responses to the above question were used to construct two
dependent variables, which are explained in terms of corruption as
measured by the CPI and control variables. These variables include
both country-level variables, such as macroeconomic performance,
democratic longevity and the level of democracy, and individual-level
variables such as political interest, electoral participation, socioeco-
nomic status, employment situation and other demographic variables.
To examine whether the results differ between citizens who support the
4 Consequences    
151

government and others, an interaction term between corruption and


support for the government is added to the equation.
The results provide clear support for the hypothesis that individuals
in countries with higher levels of corruption evaluate the performance
of the political system more negatively and have less trust in civil serv-
ants. However, supporters of the government had less negative attitudes.
A respondent in a country where corruption is absent scores 3.22 on the
four-point scale measuring system performance evaluations. The score
drops to 2.80 in a country scoring in the mid-range of the corruption
measure, while in the most corrupt country the score drops to 2.61.
Moreover, a respondent in a country where corruption is absent scores
4.26 on the five-point scale measuring trust in civil servants. The score
drops to 3.33 in countries in the mid-range of the corruption scale and
to 2.76 in the most corrupt countries.
Clausen et al. (2011) extend the study of the relationship between
corruption and trust to different types of institutions, not only civil
servants. They use the 2008/2009 wave of the Gallup World Poll
(GWP), which is a large cross-country household survey covering
over 78,000 respondents in 103 countries. The poll asks respondents
whether they have confidence in the military, the judicial system and
courts, national government, health care or medical systems, financial
institutions or banks, religious organizations, the media, and honesty of
elections. The responses are combined to create an overall index of con-
fidence which ranges from 0 (no confidence in any of the institutions)
to 4 (confidence in all institutions).
The index and its components are separately explained in terms of
corruption experience and perception. Experience is based on the
responses to the question: “Sometimes people have to give a bribe or
present in order to solve their problems. In the last 12 months, were
you, personally, faced with this kind of situation, or not (regardless of
whether you gave a bribe/present)?” Perception is based on the response
to the question: “Is corruption widespread throughout the government
in this country, or not?” Control variables are respondent age, gender,
marital status, education income, and whether the household has access
to the Internet and television.
152    
K. Sekkat

All estimates give a highly significant and negative correlation


between corruption and confidence in institutions. The coefficients
imply that a one standard deviation increase in corruption reduces con-
fidence in institutions by between 0.2 and 0.3 points on a 0–4 scale.
The result holds for both the perception and the experience measures
and is causal. Older individuals seem to have a lower degree of confi-
dence in institutions. Married respondents exhibit higher confidence
than singles. Higher income and education as well as access to Internet
and TV appear to reduce confidence although the effects are not robust.
Finally, the analysis of the impacts of corruption on specific institutions
gives similar results.
Since the preceding study pointed to a specific role for education,
Hakhverdian and Mayne (2012) investigate whether the negative effect
of corruption on trust in institutions depends on education. They use
the results of the European Social Survey (ESS) conducted in 2008–
2009 and focus on eight Eastern and Central European and 13 Western
European countries. The dependent variable, institutional trust, is based
on a combination of the responses of citizens to questions about their
levels of trust in their country’s parliament, legal system, police, poli-
ticians, and political parties. The combination gives an overall index of
institutional trust which ranges from 0 (“no trust at all”) to 10 (“com-
pletely trusting”). The two main explanatory variables are the levels
of education and corruption. The former comes from the ESS results
on education. The latter is the CPI. Control variables are age, gender,
income, religion, religious attendance, paternal level of education, social
trust, satisfaction with the present state of the national economy, GDP
per capita, and level of unemployment.
The results show that when the corruption score is at its maximum,
the most educated persons are less politically trusting than the least edu-
cated. The gap between the two groups decreases as corruption becomes
less prevalent. In a perfectly clean society, more educated people are esti-
mated to be more trusting than less educated people. In sum, in rela-
tively corrupt societies the most educated people are less trustful than
the least educated people; in moderately clean societies, they are equally
trusting; and in relatively clean societies, they are more trusting.
4 Consequences    
153

Since corruption erodes trust in the political system, one can expect
that it would also affect citizens’ participation in political life. The issue
is particularly important because if corruption also dissuades citizens
from participating in democratic elections, regime legitimacy prob-
lems may be exacerbated, increasing political instability and creating
the threat of an autocratic reversal. Stockemer et al. (2013) investigate
the link between corruption and voter behavior in a sample of around
100 democracies, including newly emerging or poor democracies over
the period 1985–2007. Turnout is the dependent variable and is meas-
ured as the percentage of eligible adult citizens that cast a ballot in their
country’s national legislative elections. The measure of corruption is the
ICRG index. Control variables are compulsory voting laws, electoral
system type, decisiveness of the election, and competitiveness of elec-
toral races. Instrumental variable estimation is used to account for feed-
back loops or reversed causation.
The findings are that corruption has a statistically significant and neg-
ative impact on voter turnout. For every one-point increase in a coun-
try’s corruption, turnout decreases by over six points, implying that very
corrupt countries have 20–30 percentage points fewer citizens turning
out at elections compared with countries with little corruption.

4 Conclusion
There is controversy about whether corruption has positive or negative
effects. Some authors argue that corruption may be beneficial by “greas-
ing the wheels” when bureaucracy is inefficient or regulation is too bur-
densome, while others state that it is always detrimental and ends up
“sanding the wheels”. There are two possible sources for such a diver-
gence. The first one concerns the basis of the comparison. Specifically,
does the comparison concern a country with inefficiency but no cor-
ruption and a country with both inefficiency and corruption, or does it
concern a country free from inefficiency and corruption and a country
with both of them? The source of divergence comes from whether the
analysis is conducted in a partial or a general equilibrium. While cor-
ruption can “grease the wheels” from a partial equilibrium perspective,
154    
K. Sekkat

it may ultimately “sand the wheels” from a general equilibrium perspec-


tive through spillovers and externalities among economic activities.
Analyses of the effects of corruption have developed along two lines.
One distinguishes economic and non-economic effects. The other
contrasts conditional and unconditional effects. The economic effects
concern growth, physical and human capital formation, productiv-
ity, infrastructure, international trade, and FDI. The non-economic
effects of corruption concern the provision of health care and educa-
tion services, safety and security, environment, electoral participation,
and confidence in public institutions. The conditional effects relate to
the debate around the “greasing-the-wheels” versus the “sanding-the-
wheels” hypotheses. The unconditional effects concern the “average”
impact of corruption independently of the functioning of other institu-
tional aspects.
As far as the unconditional economic effects are concerned, empirical
analyses show that corruption influences GDP directly and indirectly
through investment, human capital, public spending, or political insta-
bility. Both the direct and the indirect influences are negative but their
magnitude depends on the variable under consideration. For instance,
the impact of corruption on domestic investment is substantially weaker
than the impact on FDI. Such higher impact on FDI implies that cor-
ruption not only reduces productive capital but also limits technological
progress since FDI is, generally, associated with substantial technolog-
ical positive spillovers from foreign to domestic firms. Corruption also
affects productivity and innovation, which are major sources of growth.
Corruption not only affects imports and exports but also their composi-
tion. It was found, for instance, that countries which are more inclined
to pay bribes would trade more with corrupt countries than do coun-
tries less inclined to bribe. Moreover, corruption affects manufactured
exports more than non-manufactured exports. The distinction is impor-
tant because the development economics literature suggests that manu-
factured exports are more conducive to growth than non-manufactured
exports.
The non-economic impacts of corruption include an increase in pov-
erty and daily interactions with the administration. Corruption also
hurts the poor more than the rich, especially in African countries. The
4 Consequences    
155

findings also confirm the significant negative association between cor-


ruption and the provision of education and health services. Individuals
in countries with higher levels of corruption are found to evaluate the
performance of the political system more negatively and have less trust
in civil servants. Related findings are that corruption has a statistically
significant and negative impact on the number of voters.
Turning to the conditional effects of corruption, the evidence is less
consensual than for the unconditional effects. Corruption does not
reduce the time spent negotiating with bureaucracy. On the contrary,
firms that pay more bribes also spend more time dealing with burden-
some regulations. This is inconsistent with the “greasing-the-wheels”
hypothesis. Some evidence suggests that corruption reduces produc-
tivity, while other evidence finds the reverse, that is, corruption greases
the wheels of productivity. Corruption also seems to grease the wheels
of entrepreneurship. Finally, and less encouragingly, corruption slows
growth even more in countries suffering from weak rule of law and inef-
ficient government.

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Part II
Anti-corruption Strategies:
The Role of the State

The discussion in the previous chapters has shown that corruption con-
stitutes a major obstacle to economic, social, and political development
as well as to cohesion within countries. These considerations provide
ample justification for a resolute fight against corruption. At the same
time, the analysis has revealed the complexity of the phenomenon and
its causes. It follows that a realistic strategy to tackle corruption should
recognize and take account of such complexity and of the different
channels of influence.
Corruption involves those who demand certain deserved or unde-
served actions, those who are willing to accomplish these acts in return
for unjustifiable compensation, along with intermediaries and third par-
ties, some of whom are interested in seeing corruption fought, while
others are interested in seeing it perpetuated. The relative power of these
participants and the outcome of their interactions depend on the cul-
tural, political, social, institutional, and economic architecture of each
country and on the functioning of this architecture. For instance, some
blame the state which, through the monopoly it has on issuing laws,
regulation or licensing, creates opportunities that lead to corruption. In
contrast, others consider that the state by itself is not the main initiator
162    
Part II: Anti-corruption Strategies: The Role of the State

of corruption and that the blame should instead be put on the prevail-
ing incentive system as the main motive for corruption (Tanzi 1998).
Notwithstanding these opposing views, the consensus is that corruption
will be more or less widespread depending on the economic, political,
social, and value-system features of the country (Bardhan 2006).
Although corruption can take place in the private sector, it is tradi-
tionally associated with the public sector. It is then referred to as the
use of the position held by an individual in the public sector for pri-
vate gains. The reference to such position shows the need for checks to
fight corruption and thus raises the question of the political regime. In
an autocratic regime, a large part of public life is under the control of the
leader(s) and high-ranking officials, with very few checks in place. Under
such regimes, the tastes and the wishes of a small coalition (i.e., lead-
ers and their companions) determine the conduct of public affairs with
the aim of fulfilling the coalition’s own interests. This includes organiz-
ing the market for corruption. To support the coalition’s behavior, the
regime generally tolerates the fact that low-ranking state servants use
their public function for private gains. The absence of a strong and cred-
ible system of checks and balances makes the fight against such abuse
almost impossible. Accordingly, a necessary, although not sufficient, con-
dition for success in the fight against corruption is the existence of a sys-
tem of checks and balances, to which we refer here as democracy.
In contrast to autocracy, democracy allows citizens to voice their
opinions and participate in setting the rules which govern their lives
and play against corruption. However, even in democratic regimes, cor-
ruption is not absent. First, the rules which were approved by a large
majority of citizens might not correspond to other citizens’ interests.
This gives unhappy citizens an incentive to circumvent the rules even
at some expense. Second, implementation of the rules is often dele-
gated to public servants and might be subject to interpretation or arbi-
trariness. Controlling and monitoring these public servants can be very
difficult and costly due to their dispersion across the country, lack of
skilled monitors, or the existence of systemic coalitions. Third, informa-
tion asymmetry and opportunism can allow elected elites to issue laws
and regulations that are mainly targeted toward their own interest. This
Part II: Anti-corruption Strategies: The Role of the State  
   163

might facilitate capture and corruption and other uses of public office
for private gains.
It appears that under both democratic and autocratic regimes, the
issuing and implementation of laws and regulations are at the heart of
the debate. A simplistic suggestion would be to abolish or severely con-
strain the issuing of regulations. While it is true that senseless regulations
can be found in any country around the world, many regulations have
well-founded economic, political, or social justifications. Abolishing
such regulations could result in worse outcomes for the country. What
is needed are mechanisms to discourage unscrupulous participants. Such
mechanisms may take the form of punishment for infringement, reward
for compliance, contestable market power, and so on.
Punishment raises a number of issues that are not easy to deal with.
These include whom to punish (briber, recipient, intermediaries, or
everyone), the character and the severity of the punishment, and the
cost of trial, which includes collection of evidence, potential convic-
tion of the defendant, and enforcement of the verdict. These tasks may
involve a number of judges, lawyers, police representatives, and audi-
tors. This is problematic in many developing countries, where such
bodies are weak and often corrupt themselves. More importantly,
Tanzi (1998) and Bardhan (2006) have argued that in these coun-
tries, the poor might be better off thanks to corruption. For instance,
some of these countries have policies involving subsidies of food for the
poor. Unsurprisingly, the distribution of food by civil servants is often
impacted by corruption and leakage. However, without such subsidies,
the poor will be left to the market, where the price may increase to
exceed the total cost of the public subsidy plus the bribe. In this case,
not punishing civil servants results in lower food costs for the poor.
When punishment poses problems, other mechanisms can be effec-
tive and less costly in reducing corruption. These mechanisms include
reward for compliance, contestable market power, and citizen moni-
toring. Reward may consist in offering higher wages to civil servants.
This is supposed to reduce their incentives to ask for bribes. Badly
paid civil servants often ask for bribes to secure decent living condi-
tions. However, this solution might not work if these employees con-
sider the increase in wages as top-up revenue instead of as a substitute
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Part II: Anti-corruption Strategies: The Role of the State

for corruption. Alternatively, since the ability to request or offer bribes


comes chiefly from the “monopoly” power a civil servant has on cer-
tain tasks, another solution consists in breaking up this power. This can
be achieved either by making the task equally accomplishable by dif-
ferent employees or by rotating the civil servants in charge of the task.
A variant of this solution consists in transferring some tasks to the pri-
vate sector, which may improve service delivery and reduce corruption.
However, if the private sector firm engaged in service delivery is left
without control, the door will be reopened to corruption.
Separate chapters will tackle the different solutions discussed above.
Each chapter starts with a brief review of the arguments for a given
solution before presenting in more detail the empirical findings regard-
ing its effectiveness. We draw on laboratory experiments, case studies,
and micro- and macro-econometric analyses. We consider the different
sources of evidence as complementary rather than as substitutes and
see them as highlighting different dimensions of the phenomenon.
The remainder of this part is composed of eight chapters. Chapters
5–7 examine the relationship between corruption and, respectively,
democracy, electoral rules, and decentralization. Chapters 8–10 dis-
cuss, respectively, the role of regulation, justice, and specialized Anti-
Corruption Agencies (ACA). Finally, Chapters 11 and 12 focus on
changing the incentives of civil servants and international cooperation.

References
Bardhan, P. (2006). The Economist’s Approach to the Problem of Corruption.
World Development, 34(2), 341–348.
Tanzi, V. (1998). Corruption Around the World: Causes, Consequences,
Scope and Cures. IMF Staff Papers, 45(4), 559–594.
5
Democracy

This chapter discusses the effects of democracy on corruption.


Autocratic regimes are in general associated with a high prevalence of
corruption while democratic regimes seem much less affected by cor-
ruption. The reason why democracies are less corrupt is that elections
increase the probability of corrupt officials being kicked out. Moreover,
effective checks and balances under democracy increase the probabil-
ity of corrupt acts being disclosed. Finally, transparency erodes the rent
associated with being close to power. Tests of these arguments have been
conducted, but the results are mixed. While there is a consensus about
the anti-corruption effects of democracy, the empirical evidence suggests
that the magnitude of the effects depends on various factors, such as the
age and the degree of maturity of democracy as well as electoral rules
(majority or proportional systems, presidential, parliamentary or federal
approaches).

© The Author(s) 2018 165


K. Sekkat, Is Corruption Curable?, https://doi.org/10.1007/978-3-319-98518-3_5
166    
K. Sekkat

1 Expected Impacts of Democracy


on Corruption
As explained in the introduction, corruption is often associated with
the power that a person acquires when holding a specific position in
the public sector. The extent of such power depends both on the posi-
tion of the person and on the political regime of the country. Autocratic
regimes are typically personalized, and the ruler has very extensive
power. Although in such regimes public opinion could still have an
impact, divisions within countries along economic, social, or ethnic
classes provide the leader with significant autonomy. In this context, the
ruler can maintain considerable power by relying on narrow group of
citizens to which we refer as the elite. Although some exceptions may
exist (e.g., Singapore, South Korea, or Taiwan some years ago), the ruler
and the elite are mainly concerned with their own interest rather than
with broad-based wealth. Accordingly, the autocratic leader needs to sat-
isfy only this narrow coalition. In contrast, a democratic leader needs
a majority in a larger constituency and is therefore accountable to far
more citizens. For this reason, a democratic leader has to obtain broad
public satisfaction through, among other things, well-functioning insti-
tutions. Accountability and the potential role of well-functioning insti-
tutions in improving growth and equity make the democratic leader
much more averse to corruption than the autocrat.
The net impact of democracy on corruption is disputed even at the
theoretical level. Democracy is expected to reduce corruption for sev-
eral reasons. First, the election process increases the probability of cor-
rupt acts being disclosed and of corrupt officials being punished. On
the one hand, the opposition has an incentive to uncover and publicize
corrupt activities by the incumbent. On the other hand, voters have an
interest in not reelecting politicians that favor their own private inter-
ests over those of the electorate. Second, democracy creates a more open
system of government. This implies less information asymmetry on how
the system works, which promotes a decrease in the rent associated with
being close to power. Third, effective checks and balances within gov-
ernment will constrain the ability of officials to deviate from impartial
5 Democracy    
167

practices. Finally, democratic culture goes, in general, with a negative


view of corruption in society. As a result, corrupt activities become
repellant because they involve greater stigma.
Democracy can also have a negative impact on corruption. First,
election campaigns require funding, and more competitive elections
may make political parties and candidates vulnerable to pressure from
funders (Rose-Ackerman 1999). Second, even a rational and informed
voter may choose to vote for a corrupt government for strategic rea-
sons (Pani 2011). Third, the effect of a more open government is also
ambiguous. Bac (2001) argues that transparency makes it easier to iden-
tify which official to bribe, and shows that this effect may dominate a
corruption detection effect. Fourth, institutions in charge of enforcing
government accountability are often appointed or funded by the gov-
ernment itself. This can reduce their incentive and capacity to expose
government corruption. In some cases, these institutions have been used
to persecute political opponents of the government, rather than to hold
the government accountable.
The effect of democracy on corruption also depends on the degree
of maturity of a democracy. In its early stages, a democracy might suf-
fer from weak checks and balances and insufficient transparency. In this
context, rent-seekers can continue collecting bribes with a low risk of
being under public scrutiny. As transparency and accountability become
more effective, the cost of rent-seeking (including the probability of
getting caught and punished) increases and, as a result, aggregate rents
and corrupt activity are likely to decline. Following Rock (2009), this
implies an inverted-U relationship between corruption and the durabil-
ity of democracies.

2 Actual Impacts of Democracy


on Corruption
The above conceptual analysis suggests that democracy may reduce or
increase corruption depending on a number of factors. In spite of the
importance of the question, very few studies have examined the effect
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K. Sekkat

of democracy per se on corruption. A potential reason for this limited


number of investigations may be the common belief that democracy
indisputably reduces corruption. Another reason is that both democ-
racy and corruption are multifaceted processes and affect each other in
numerous and sometimes conflicting manners. Meanwhile, as pointed
out by Sung (2004), numerous corrupt practices re-emerged follow-
ing political liberalization in Southeast Asia, Latin America, and the
former Soviet republics. In fact, the few empirical analyses examining
the impact of democracy per se on corruption provide mixed evidence.
Other more numerous studies have investigated the factors behind such
lack of consensus. In general, these studies point to the nonlinearity
of the effect of democracy on corruption or to the dependence of this
effect on other variables.
Akarca and Tansel (2016) focus on how the government of Turkey
dealt with the consequences of the two major earthquakes which struck
northwestern Turkey in 1999 to examine how voters exposed and pun-
ished politicians. After the quakes, a lot of old buildings remained
standing but many of the recently constructed ones collapsed due to
numerous violations of construction rules and zoning codes. For many
observers, these violations and the subsequent mismanagement related
to relief were poisoned by corruption.
To determine whether and how voters punished the elected members
of the parties that were responsible for construction of the second-rate
buildings and for the disappointing management of relief efforts, the
paper uses the results of elections following the earthquakes. A vote
equation is estimated for each of the country’s seven major political
parties. The vote share of party i, in province j, in the election held in
year t is explained in terms of the same share but in past elections, the
provincial mean years of schooling of the population over age six, the
proportion of the urban population in the province, the proportion of
women in non-agricultural employment in the province, the provin-
cial growth rate of per capita real GDP, and the number of residences
and business places in the province having suffered heavy damage dur-
ing the earthquakes. The years of observation are those of the two suc-
cessive elections of 1999 and 2002. The results show a general shift in
votes between the two elections from the ruling parties in favor of the
5 Democracy    
169

non-ruling Islamic party. The shift was more pronounced in provinces


which suffered heavy earthquake damage. In addition to the ruling par-
ties since 1991, other parties which were in power when the second-rate
buildings were built were held accountable by the electorate. This voter
reaction seems to have been one of the factors that allowed the Islamic
party (established only a year before) to capture a large majority of votes
in the country.
The preceding example may lead to a highly optimistic view regard-
ing the impact of democracy on corruption. Without refuting the
importance of democracy, various papers mitigate its impact on cor-
ruption. For instance, Paldam (2002) and Goel and Nelson (2005)
emphasize the role of economic freedom in completing the impact of
democracy on corruption. Iwasaki and Suzuki (2012) put forward the
difference between old and young democracies. Bhattacharyya and
Hodler (2010) and Henderson and Kuncoro (2011) investigate two
under-examined issues, namely the role of natural resources and reli-
gion, respectively. Finally, other papers such as Rock (2009), Billger and
Goel (2009), and Kolstad and Wiig (2016) focus on more technical but
very important problems which might affect estimations of the impact
of democracy on corruption.
Paldam (2002) examines the impact of economic, institutional, and
cultural factors in curbing corruption as measured by the 1999 corrup-
tion index from Transparency International (TI). The economic vari-
ables are the level and growth of real income per capita, the inflation
rate, and the economic freedom index. The cultural variables use a set
of dummies for “cultural areas”, while the institutional variable is the
Gastil Democracy Index. The results show that more democracy is asso-
ciated with less corruption. More generally, the transition of a country
toward a wealthy liberal democracy goes with a dramatic reduction in
the level of corruption.
Goel and Nelson (2005) focus on the impact that economic and
political freedoms have on the prevalence of corruption in 63 develop-
ing and developed countries in 2000. TI’s Corruption Perceptions Index
(CPI) is used as the measure of corruption, the Heritage Foundation’s
index is used as a measure of economic freedom, and democracy is
measured by the Gastil Index of Civil Liberties and Political Rights in
170    
K. Sekkat

the country. Other explanatory variables include educational attain-


ment, per capita GNP, and the black market premium.
The results show that less democratic countries are associated with
higher corruption. It also appears that economic freedom may serve as
a deterrent to corruption and that such effect is stronger than the effect
of democracy. In other words, greater economic freedom complements
democracy as a deterrent to corrupt activities. Among the different
components of economic freedom, monetary policy seems to have a
strong influence on the level of corrupt activity in a country. Countries
with less regulated financial sectors and those with smaller black mar-
kets are likely to be less corrupt.
The transition of many European countries from communist authori-
tarian regimes to more market-oriented democratic ones offered Iwasaki
and Suzuki (2012) a useful way to test the relationship between cor-
ruption and democracy. Their analysis used panel data for the period
1996–2006 covering 202 countries throughout the world. It regressed
the World Bank’s Control of Corruption Index (CCI) on a dummy
variable assigning a value of 1 to transition countries and 0 otherwise
and a set of control variables including marketization, rule of law, GDP
per capita, the construction industry’s share of GDP, and the Protestant
population share. The results show that the extent of corruption control
in former socialist states decreased when compared with the trend for
the whole world, even after considering the economic development level
of the countries. However, the results also indicate that a noticeable dif-
ference in the degree of corruption arose among transitional countries
themselves. The lack of a democracy effect found here might be due to
the fact that such democracies are still “young”. As discussed in Chapter
3, Treisman (2000) finds that while the current degree of democracy is
not significant in explaining corruption, a long period of exposure to
democracy is.
Bhattacharyya and Hodler (2010) study the interplay between
democracy, natural resources, and corruption using panel data covering
the period from 1980 to 2004 and 124 countries. The intuition behind
the research question comes from a game between politicians and the
people. Politicians may primarily care about social welfare and/or about
the revenues they can generate through corrupt activities. Citizens care
5 Democracy    
171

about their own interest and hence prefer politicians who act accord-
ingly. Incumbent politicians therefore have an incentive to avoid cor-
ruption in order to improve their chances of remaining in power.
However, such mechanisms will work only if politicians are accounta-
ble and citizens can effectively kick politicians out of office. As a result,
the level of corruption in the presence of abundant natural resources
will depend on the strength of democracy in the country. In empirical
terms, this can be tested by introducing an interaction term for democ-
racy and natural resources in the equation linking corruption to natural
resources. If the story fits, the results should show a threshold level of
democracy below which the effect of resource abundance on corruption
is more corruption and above which the effect of resource abundance is
less corruption.
The ICRG corruption index is regressed on a measure of natural
resource rents, the Polity 2 Democracy Index and the interaction of
these two variables. The natural resource rent measure is the log per cap-
ita rent from natural resources including energy, minerals, and forestry.
It is computed using the difference between the world price of a com-
modity and the average extraction costs (both expressed in current US
dollars). Control variables include the log per capita income, legal ori-
gin dummies, ethnic fractionalization, and the black market premium.
The estimates confirm that the relationship between resource rents
and corruption depends on the degree of democracy. Resource rents
are positively associated with corruption in countries that have a
Polity 2 score of 8.5 or less for an index varying between −10 (low-
est level of democracy) and 10 (highest level of democracy). These find-
ings imply that resource-rich countries have a tendency to be corrupt
because resource abundance encourages their governments to engage
in rent-seeking. This tendency can be countered if governments are
accountable to the people. However, given the necessary threshold, the
effect is likely to appear in highly democratic countries such as Australia
or Norway.
Indonesia is a country with a tradition of corruption among local
officials who harass and collect bribes from firms. In 1999, the first free
elections took place and involved five major political parties, includ-
ing the long-standing secular parties led by Muhammad Suharto and
172    
K. Sekkat

Megawati Sukarnoputri, respectively. At the national level, these elec-


tions led initially to a coalition government between the Megawati party
and the main Islamic party. In 2001, the national coalition collapsed
and Megawati took over as president. At the local level, her secular party
often allied with the other major secular party. Megawati held office
until the end of the first election cycle in 2004. Both the 1991 elections
and the change in coalitions after 2001 introduced local democratiza-
tion and decentralization. Henderson and Kuncoro (2011) examine the
impact of these changes on corruption and on the role of religious vs
secular parties.
The base of the study is a survey of firms carried out in early 2005
across all districts of Java. The survey focuses on bribe activities in pre-
vious years and is assumed to reflect the influence of the composition of
the assemblies elected in 1999. The study also uses the results of another
survey conducted in 2001 and covering one-third of the districts of
Java. This second survey asked about corruption in 2001. The survey
for 2004 covered 2707 firms, all in manufacturing in Java (97 districts).
The 2001 survey was a random sample of 1808 enterprises spread over
all economic sectors in 64 districts of Indonesia.
In both surveys, a question specifically concerned the fraction of costs
devoted to bribes. This is used as the dependent variable and explained
in terms of the share of the two major secular parties in the assembly
elected in 1999. Control variables include GDP per capita, changes in
religiosity (measured as the ratio of Islamic to state elementary schools)
and whether the owner of the firm is a Chinese–Indonesian (tradition-
ally subject to more harassment). The results show that the introduc-
tion of local democracy is associated with decreased local corruption.
However, as local shares of secular parties rise, the relative degree of
corruption rises. The baseline results suggest that a secular party share
increase of 10% raises the bribe ratio by 1.2. The effect is non-negligible
given that the mean of the bribe ratio is 3.6. As the authors point out,
the results should not be interpreted as an indication about religion per
se but rather as a sign that the entry of new parties seeking political sup-
port is good for anti-corruption concerns.
Many papers relevant for our purpose assume a linear relationship
between democracy and corruption. If this assumption is not valid, the
5 Democracy    
173

conclusions we can draw from these studies might be worthless. Non-


validity of the assumption may also explain the high heterogeneity in
impacts of democracy on corruption across countries. Rock (2009)
argues that the relationship between corruption and democracy has the
form of an inverted-U. As explained above, young democracies might
suffer from weak checks and balances and insufficient transparency.
These provide corrupt people with greater opportunities for collecting
bribes without being under the effective threat of public investigation.
As the institutions of transparency and accountability develop, corrupt
activities decrease because the cost of corruption (including the prob-
ability of getting caught and punished) increases. If well-founded, this
mechanism implies an inverted-U relationship between corruption and
the maturity of democracies.
Rock (2009) investigates whether such an inverted-U relation-
ship exists using the World Bank’s (WB) CCI as a dependent variable.
Three measures pertaining to democracy—Institutionalized democracy,
Institutionalized autocracy, and Durability of democracy—are used and
come from Polity V. Control variables include the WB Government
Effectiveness and Rule of Law indexes, the log of real GDP per capita,
and an ethnolinguistic fractionalization index. The panel dataset covers
around 100 countries between 1996 and 2003. To test for the existence
of the inverted-U relationship, the variables related to democracy are
introduced and squared. The results show strong support for the invert-
ed-U relationship between corruption and durability of democracy.
The turning point in the relationship seems to occur between 4 and
15 years, which is a relatively young age. The conclusion is that some
low-income countries might be able to reduce corruption relatively
quickly after opting for democracy.
Billger and Goel (2009) focus on a different type of nonlinear-
ity than the preceding paper. While Rock (2009) investigates whether
the impact on corruption depends on the level of the explanatory var-
iable, Billger and Goel (2009) examine whether the impact on cor-
ruption varies with the level of the dependent variable itself, that is,
corruption. The idea is that there may be subtle institutional differences
between corrupt and “clean” countries that might lead to differences in
the impact of the determinants and in the efficacy of anti-corruption
174    
K. Sekkat

policies. The authors use quantile regression techniques, which make it


possible to investigate whether the relationship between corruption and
the explanatory variables varies over the distribution of the dependent
variable.
The data include cross-sectional observations on 99 countries
from 2001 to 2003. The dependent variable is the CPI. Democracy
is the sum of the Freedom House Political Rights and Civil Liberties
Indexes. Control variables include economic freedom from the Heritage
Foundation, real GDP per capita, general government final consump-
tion expenditure (% of GDP), and the urban population (% of total).
The results support the previous findings in the literature but also reveal
differences across quantiles. Democracy significantly decreases corrup-
tion irrespective of the quantile. However, the magnitude of the effect
depends on the quantile. The decrease in corruption due to democracy
is much higher in the most corrupt nations than in the least corrupt.
Greater economic prosperity (i.e., real GDP per capita) also reduces cor-
ruption in all cases. The effect of greater economic freedom is not statis-
tically significant in any of the quantiles. A complementary analysis by
Saha and Su (2012) using a very similar approach to Billger and Goel
(2009) adds the finding that democracy may not be effective in combat-
ing corruption at a low level of economic freedom (for countries at any
level of corruption). In contrast, democracy becomes effective in curing
corruption for the most corrupt countries when the level of economic
freedom is high.
Another important technical issue that may affect the relationship
between democracy and corruption is simultaneity. On the one hand,
both democracy and corruption are likely to be affected by other var-
iables that are hard to observe or quantify, such as culture. On the
other hand, there may be a reverse causality by which corruption affects
democracy. For instance, corruption may undermine the confidence of
voters in the democratic system and hence trigger reversals. According
to Kolstad and Wiig (2016), these technical issues might explain the
conflicting findings with regard to the relationship between democracy
and corruption.
The authors address this challenge by using an instrumental var-
iables approach. They instrument democracy using a dummy variable
5 Democracy    
175

reflecting whether a country has been at war with a democracy in the


period 1946–2009, while controlling for the extent to which countries
have been at war in general. A dummy variable is used to instrument
the level of democracy in 2008. The idea behind the instrument is that
democracies rarely go to war against each other. Controlling for conflict
in general, conflict with democracies should therefore be a valid instru-
ment. As measures of the dependent variable, the authors use two dif-
ferent indexes: The World Bank’s CCI and Transparency International’s
CPI. As measures of democracy, they use the Polity IV Democracy
Index and the Freedom House Political Rights Index. Control variables
include the log of GDP per capita, the legal origin of countries, labor
participation rates, and the proportion of Catholics in the country. For
variables other than those related to conflicts, data are taken from the
year 2008. The results suggest that democracy may be more effective in
reducing corruption than indicated by estimates not taking the endog-
eneity of democracy into account. Accordingly, there may be a substan-
tial effect from improving democracy in developing countries, where the
problem of corruption is most prevalent. The authors do not, however,
address the issue of heterogeneity in impacts of democracy on corrup-
tion across countries.

3 Conclusion
Although democracy contributes to reducing corruption, it cannot
eradicate it. A country’s democratic status is not sufficient to deter
corruption. A number of studies point to the role of other variables
in determining the relationship between corruption and democracy.
These include the extent of economic freedom, the age and maturity
of democracies, natural resources, and culture. Others studies focus on
more technical but very important problems which might affect the
estimation of the impact of democracy on corruption.
The evidence suggests that the current degree of democracy is not
significant in explaining corruption, while a long period of exposure
to democracy is. Moreover, economic freedom seems to be a stronger
deterrent to corruption than democracy alone. Countries with less
176    
K. Sekkat

regulation and those with smaller black markets are likely to be less
corrupt. Resource-rich countries have a tendency to be corrupt, which
implies that the degree of accountability and monitoring needed to
counter this tendency is higher than in countries with no natural
resources.
Regarding the technical issues, it seems that the assumption of a lin-
ear relationship between corruption and democracy hinders the identi-
fication of links between the two variables. Some findings suggest that
the relationship takes the form of an inverted-U. One reason is that
young democracies might suffer from accountability and transparency
issues, which favor corruption because of the low likelihood of being
exposed. When democracies mature, transparency and accountability
develop and corrupt activities decrease because of the higher probability
of getting caught and punished. Another technical problem that may
affect the link between democracy and corruption is endogeneity. Both
democracy and corruption may be affected by other variables, which
can lead to the identification of spurious relationships. Moreover, the
relationship between corruption and democracy might be bidirectional.
Corruption may undermine the confidence of voters in the democratic
system and thus generate an autocratic reversal, which in turn creates
opportunities for corruption.

References
Akarca, A. T., & Tansel, A. (2016). Voter Reaction to Government
Incompetence and Corruption Related to the 1999 Earthquakes in Turkey.
Journal of Economic Studies, 43(2), 309–335.
Bac, M. (2001). Corruption, Connections and Transparency: Does a Better
Screen Imply a Better Scene? Public Choice, 107(1–2), 87–96.
Bhattacharyya, S., & Hodler, R. (2010). Natural Resources. Democracy and
Corruption. European Economic Review, 54(4), 608–621.
Billger, Sh. M., & Goel, R. K. (2009). Do Existing Corruption Levels Matter
in Controlling Corruption? Cross-Country Quantile Regression Estimates.
Journal of Development Economics, 90(2), 299–305.
5 Democracy    
177

Goel, R. K., & Nelson, M. A. (2005). Economic Freedom Versus Political


Freedom: Cross-Country Influences on Corruption. Australian Economic
Papers, 44(2), 121–133.
Henderson, J. V., & Kuncoro, A. (2011). Corruption and Local
Democratization in Indonesia: The Role of Islamic Parties. Journal of
Development Economics, 94(2), 164–180.
Iwasaki, I., & Suzuki, T. (2012). The Determinants of Corruption in
Transition Economies. Economics Letters, 114(1), 54–60.
Kolstad, I., & Wiig, A. (2016). Does Democracy Reduce Corruption?
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Paldam, M. (2002). The Cross-Country Pattern of Corruption: Economics,
Culture and the Seesaw Dynamics. European Journal of Political Economy,
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Pani, M. (2011). Hold Your Nose and Vote: Corruption and Public Decisions
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Rock, M. T. (2009). Corruption and Democracy. Journal of Development
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Rose-Ackerman, S. (1999). Political Corruption and Democracy. Conn. J. Int’l
L., 14, 363–378.
Saha, S., & Su, J. J. (2012). Investigating the Interaction Effect of Democracy
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Regression Analysis. Economic Analysis & Policy, 42(3), 389–396.
Sung, H. E. (2004). Democracy and Political Corruption: A Cross-National
Comparison. Crime, Law and Social Change, 41(2), 179–193.
Treisman, D. (2000). The Causes of Corruption: A Cross-National Study.
Journal of Public Economics, 76(3), 399–457.
6
Electoral Rules

Under democratic regimes, the disciplinary role of elections may be


inhibited because voters might reelect a corrupt government for strate-
gic or partisan reasons. In addition, election campaigns require fund-
ing, which makes political parties and candidates vulnerable to pressure
from contributors. Finally, institutions in charge of enforcing govern-
ment accountability are often appointed or funded by the government
itself, which hampers their capacity to expose government corruption.
This chapter reviews the factors which limit the impact of democracy on
corruption. The limitation of the disciplinary role of democracy on cor-
ruption depends on the functioning of two mechanisms. One is based
on competition, while the other draws on career concerns. Competition
makes it possible to contest the power of a politician. Career concerns
place self-restraints on a politician. The following analysis is organized
around these two mechanisms and explicitly discusses the financing
of electoral campaigns under different democratic settings, the voting
behavior of the different participants, and the role of opponents in
exposing incumbents’ corrupt practices.

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1 Expected Impacts of Electoral Rules


on Corruption
As discussed in the preceding chapter, while there are several reasons
for democracy to reduce corruption, there are also arguments suggest-
ing that democracy can increase corruption. Moreover, the empiri-
cal evidence is mixed. One possible reason for such mixed evidence is
that the corruption indexes used do not make it possible to distinguish
between petty and grand corruption. The former generally concerns
small payments to low-ranking officials in exchange for services that
citizens are entitled to in any case. The latter concerns large payments
to high-ranking officials and ministers in exchange for influencing or
changing regulations and other state rules. While petty corruption is the
most visible and exasperating to ordinary citizens, grand corruption has
potentially higher adverse economic impacts. In developing countries,
it is almost impossible to find someone who has never been directly or
indirectly (through parents or other relatives) asked for some kind of
payment to get things done (petty corruption). In developed countries,
this kind of corruption is very rare. However, it is equally difficult to
find a developed country where no politician or high-ranking official
has been convicted of taking some money from firms or other “bene-
factors”. Accordingly, in developed democracies, the main issue is with
grand corruption. One of the most frequently cited drivers of corrup-
tion in this context is elections. Election campaigns require, in general,
huge amounts of funds. This makes political parties and candidates vul-
nerable to pressure from funders (Rose-Ackerman 1999), especially if
elections are competitive (Anduiza et al. 2013).
Another possible reason why democracy does not reduce corrup-
tion is that, as observed by (Rose-Ackerman 2006), in some countries
citizens continue voting for corrupt candidates. This may be due to
the institutional system or to voters’ tastes. For instance, a party that
uncovers a scandal might be rewarded at the polls for its vigilance and
integrity. However, the incentive to reveal scandals also depends on the
cost of exposing malfeasance, which may be high not only in terms of
money but also in terms of future collaborations, as scandalmongers
6  Electoral Rules    
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may be punished by being excluded from future coalitions. This may


give everyone an incentive to keep quiet in the face of scandals involv-
ing others. In addition, corrupt politicians might not be kicked out
because of partisan attitudes toward corruption (Anduiza et al. 2013).
For instance, a survey carried out in Spain, a country that has seen a
non-negligible number of corruption scandals, showed that the same
infringement is judged differently depending on whether the responsi-
ble politician is a member of the respondent’s party or not. In sum, in
democratic systems too, politicians may engage in corruption irrespec-
tive of whether they are in office or seeking office. While the above dis-
cussion highlights some of the reasons for corruption, there are many
other features of democracies which can make some of democracies
more corrupt than others. According to Rose-Ackerman (2006), these
relate to the design of democratic institutions, such as majority or pro-
portional systems, presidentialism, parliamentarism, federalism, bicam-
eralism, and so on.
Majority systems mean that a single member of a party is elected by
district, while proportional systems mean that more members poten-
tially from different parties are elected per district. Under majority sys-
tems, voters elect a single representative from their district of residence.
The proportional system includes two variants: closed list and open list.
Under a closed-list system, party leaders rank candidates and voters only
vote for parties. Candidates are elected following the order established
by the party up to the limit of the party’s score. Under an open-list sys-
tem, voters both select a party and rank candidates based on the party’s
selection of candidates.
Analyses of the effects of political institutions on corruption are
mainly based on two strands of economic theory. These are competi-
tion, which makes it possible to contest the power of a politician, and
career concerns, which place self-restraints on a politician. Theories
based on political competition suggest that electoral rules that lower
barriers to entry into political competition should be better at limit-
ing corruption. In contrast, theories based on career concerns suggest
that the fact that opportunities for corruption are concentrated among
a handful of political players enables better monitoring by voters and
should constrain corruption. According to Birch (2007), majority rule
182    
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should be more conducive to corruption than proportional rule, for


three reasons. First, politicians have more to gain from individual efforts
to corrupt elections due to the winner-take-all nature of majority sys-
tems. Second, many voters tend to associate some forms of corruption
(special gifts, vote-buying) with individual candidates and other forms
with the party. The candidate is therefore encouraged to tailor his/her
practices to satisfy these expectations, even at the expense of the party.
Third, because the number of votes that must be changed in order to
alter the outcome of the election is typically smaller in majority than
in proportional systems, the cost of malfeasance is lower in majority
systems. However, other contributions raise doubts about these out-
comes. For instance, Kunicova and Rose-Ackerman (2001) contend that
closed-list proportional representation (PR) systems are more suscepti-
ble to corruption than open-list PR and majority systems. The reason
seems to lie with the fact that majority systems (single representative
by district) highly constrain politicians’ rent-seeking because they make
representatives easily accountable to voters. Voters in such single-mem-
ber districts are better able to observe their representative’s performance
and potential misconduct. Voters can therefore identify and eject cor-
rupt representatives at the time of elections. Conversely, in closed-list
proportional systems, it is more difficult for voters to punish politicians’
malfeasance because they vote for parties, not individual politicians. The
link between the performance of individual politicians and their reelec-
tion is weakened by the fact that the candidate’s position on the elec-
toral list (and his/her chance of election) is decided by the party, not
voters. The open-list proportional system lies between the two extremes.
Representatives can be punished because voters vote for a particular rep-
resentative on the list and can kick out corrupt ones. However, Chang
(2005) argues that in open-list PR systems, politicians are more corrupt
because of the need to finance campaigns. Under such systems, per-
sonal votes are critical for politicians to win election. This kind of sys-
tem makes elections more uncertain for individual politicians, and this
uncertainty about their chances of winning election may drive politi-
cians to corruption in order to finance campaigns.
To sum up, there is no consensus at the theoretical level. Any conclu-
sion may come only from empirical analyses. These are reviewed below
6  Electoral Rules    
183

and suggest a number of other factors which are in play, including


whether the politician holds or is seeking office, the size of districts, and
the degree and type of decentralization.

2 Actual Impacts of Electoral Rules


on Corruption
As an illustration of the role of democratic institutions, Rose-Ackerman
(2006) contrasts the French presidential elections of 2002 with the case
of Helmut Kohl in Germany. France has a presidential system where
the government’s chief executive is directly elected in a run-off system.
French voters’ decision-making differs greatly from that of the German
parliamentary system, where the chief executive is a chancellor (prime
minister) who is usually a leader of the strongest party.
In France, just before the 2002 presidential election, the incum-
bent president, Jacques Chirac, and his party were involved in a series
of corruption scandals involving inflated construction contracts, ficti-
tious jobs, use of public funds for personal expenses, and vote-rigging
in previous elections. However, no evidence of Chirac’s personal enrich-
ment was found. Despite the abundant evidence, Chirac simply refused
to admit that the scandals existed, which is unsurprising. The surprise
came from the fact that the opposition Socialist Party did not seize
upon this to push its own candidate. The other candidates’ parties did
similarly. As a result, corruption did not become a major issue in the
campaign, and Jacques Chirac got into the run-off while the Socialists
failed to do so.
In Germany, an investigation concerning Chancellor Helmut Kohl
was completed in July 2002. He was accused of accepting secret dona-
tions for his party. Helmut Kohl admitted “some mistakes” and claimed
that what he did was in the interest of the party. The investigation
showed no evidence of Kohl’s personal enrichment but concluded that
there were infringements. Because of the breach of the law, both Kohl
and his party, the CDU, had to pay fines. In contrast to the French
case, where the opposition was silent about the corruption scandal,
184    
K. Sekkat

the CDU’s main rival, the Social Democratic Party (SPD), seized the
opportunity to criticize the CDU. Voters responded forcefully by
strengthening the SPD’s position in both houses of the German parlia-
ment. Leaders of the CDU ensured that Kohl would never again lead
the CDU as candidate for chancellor in a federal election.
Looking beyond this anecdote, the empirical literature has investi-
gated more formally the impact of different democratic institutions on
corruption. In general, it associates majority rule with single-member
districts. The country is divided into multiple districts, each of which
elects a single candidate. Proportional representation (PR) systems,
meanwhile, tend to have large, often national, districts, electing the
entire legislature in one or a few districts. Of course, there are differ-
ences among PR systems in terms of district magnitude, but the basic
comparison is that under PR district magnitude is larger than under
plurality rule.
Kunicova and Rose-Ackerman (2005) test the hypothesis presented
above that closed-list PR systems are more susceptible to corruption
than open-list PR and majority systems. They used the CPI constructed
by Transparency International (TI) and the CCI from the World Bank
(WB). As far as electoral rules are concerned, they use the WB Database
on Political Institutions. They construct a dummy for each of the three
systems for a cross-section of 105 countries in 1997. Control varia-
bles include indicators of presidentialism, federalism, GDP per cap-
ita, press freedom, degree of political competition, and ethnolinguistic
fractionalization.
The results confirm the main expectations and in particular the exist-
ence of a relationship between electoral rules and corruption. Closed-list
PR is more corrupt than open-list or majority systems. The geographic
size of districts (rather than district magnitude) is a driving force that
makes closed-list systems most corrupt. Finally, presidential propor-
tional systems are more corrupt than their parliamentary counterparts.
Chang (2005) examines the support for his hypothesis that open-
list PR drives politicians to corruption. Specifically, the paper examines
how the electoral pressure created by intra-party competition under
open-list PR systems might drive individuals, especially those who are
at risk of losing reelection, to resort to political corruption. The paper
6  Electoral Rules    
185

focuses on the pre-1994 Italian legislatures and uses a dataset on charges


of political corruption against Italian members of parliament. The unit
of analysis is the individual legislator. The hypothesis to be tested is
that a legislator is likely to be charged with political corruption if he/
she faces more uncertainty about reelection. The main explanatory var-
iable is electoral uncertainty resulting from intra-party competition. It
is measured using the ratio of victory in the previous election. The ratio
is the number of preference votes an incumbent received divided by the
number of preference votes for the lowest winner from the same party
in that district. It is assumed that there is a direct inverse relationship
between the ratio of victory and uncertainty (a legislator’s uncertainty
decreases as the ratio increases). Control variables include the number
of legislative terms the candidate has served, the number of corrupt
competitors a candidate competes with in a given district, GDP per
capita, and the size of government.
The results exhibit a significantly positive coefficient for the electoral
uncertainty variable, as expected. This means that a candidate is more
likely to be corrupt if he/she has greater doubt about being elected. A
candidate who is ranked lower on the final party list in the previous
election has more incentive to “work harder” in making more budget-
ary amendments so as to attract new supporters for the next election.
Overall, under electoral systems in which politicians are in critical need
of personal votes, electoral uncertainty actually drives politicians to
political corruption.
Chang and Golden (2007) supplement the above paper by empha-
sizing the role of district magnitude (i.e., number of seats by district)
under open-list systems in driving corruption. This is because under
open-list systems, the incentives to amass resources increase with dis-
trict magnitude. The opposite seems to hold under closed-list systems.
Accordingly, the hypotheses to be tested are that corruption increases
with district magnitude under open-list systems and decreases with dis-
trict magnitude under closed-list systems.
The first part of the paper uses data from the years 1996, 1997, and
1998 across 40-odd contemporary democratic nations. The CPI and
WB measures of corruption are used. The explanatory variables include
whether a country qualifies as a democracy. The information is based on
186    
K. Sekkat

Freedom House and Polity IV data. The data on electoral systems and
district magnitude come from the Database on Political Institutions.
Control is made for the effective number of political parties, presiden-
tial versus parliamentary, and federal versus unitary systems.
The results show that political corruption gets more severe as district
magnitude increases under open-list systems. Conversely, under closed-
list systems, political corruption gets less severe as district magnitude
increases. Moreover, after a certain threshold of magnitude (around 15
according to the author), corruption becomes greater in open-list sys-
tems than in closed-list systems. Only in small districts (below 15 seats)
are closed-list systems associated with more corruption, as commonly
accepted. It follows that countries using open-list rules should keep
district magnitudes small in order to discourage the intense intra-party
political competition that can drive important political corruption. This
finding is robust to the inclusion of various important control variables,
including per capita wealth and the efficiency of the judiciary.
The second part of the paper explores the relationship between dis-
trict magnitude and political corruption in Italy for the years from 1948
to 1994. Over this period, Italy used an open-list system in which voters
could decide to use as many as three preference votes for individual can-
didates on the party list of their choice. Corruption is measured based
on charges of suspected (mainly political) corruption against Italian
members of parliament. The evidence corroborates the hypothesis.
Larger electoral districts are associated with higher levels of corruption.
In addition to electoral rules (majority versus proportional), Persson
et al. (2003) consider the respective effects of electoral competition and
career concerns on corruption. Using a panel of about 80 democracies
in the 1990s, they investigate whether the degree of electoral competi-
tion and career concerns explain differences in corruption across coun-
tries. Specifically, they assume that larger district magnitude and lower
thresholds for representation reflect more electoral competition and lead
to less corruption. Another assumption is that a larger share of repre-
sentatives elected on an individual ballot instead of party lists is associ-
ated with career concerns and causes corruption. Finally, competition
under a proportional system with a single nationwide district is assumed
to be weaker than under a majority system with several single-member
6  Electoral Rules    
187

districts. As a consequence, a combination of majority rule with small


districts is associated with less corruption.
The measure of democracy is based on the Gastil Indexes of Political
Rights and Civil Liberties published by Freedom House. In addition,
the age of a democracy, defined as the fraction of time of uninterrupted
democratic rule going back in time, is also considered. The measures
of corruption are the CPI and the WB and ICRG indexes. The exist-
ence of barriers to entry or low competition is reflected in the average
magnitude of voting districts, defined as the number of districts divided
by the number of seats in the lower house. To proxy the career-concern
effect, two measures are used. One is the proportion of legislators in the
lower house who are elected on an individual ballot by majority rule.
The other is the proportion of legislators in the lower house elected
individually or on open lists. Finally, a dummy is introduced to distin-
guish between majority and proportional rules, as well as a number of
additional economic, social, cultural, historical, and geographic varia-
bles that correlate with the incidence of corruption.
The findings are that smaller electoral districts tend to be associated
with more corruption, which is in line with the barriers-to-entry or
low-competition hypothesis. Voting for individuals instead of voting for
party lists leads to less corruption, as predicted by the career-concern
hypothesis.

3 Conclusion
The disciplinary role of elections on corruption depends on the design
of democratic institutions, such as majority or proportional systems,
presidentialism, parliamentarism, federalism, bicameralism, and so on.
For instance, closed-list proportional representation systems are more
corrupt than open-list or majority systems. However, intra-party com-
petition may favor corruption under open-list proportional systems.
Voting for individuals instead of voting for party lists leads to less cor-
ruption because of candidates’ career concerns. Presidential proportional
systems are more corrupt than their parliamentary counterparts.
188    
K. Sekkat

References
Anduiza, E., Gallego, A., & Muñoz, J. (2013). Turning a Blind Eye
Experimental Evidence of Partisan Bias in Attitudes Toward Corruption.
Comparative Political Studies, 46(12), 1664–1692.
Birch, S. (2007). Electoral Systems and Electoral Misconduct. Comparative
Political Studies, 40(12), 1533–1556.
Chang, E. C. (2005). Electoral Incentives for Political Corruption Under
Open-List Proportional Representation. Journal of Politics, 67(3), 716–730.
Chang, E. C., & Golden, M. A. (2007). Electoral Systems, District Magnitude
and Corruption. British Journal of Political Science, 37(1), 115–137.
Kunicova, J., & Rose-Ackerman, S. (2001). Electoral Rules as Constraints on
Corruption: The Risks of Closed-List Proportional Representation. New Haven,
CT: Department of Political Sciences, Yale University.
Kunicova, J., & Rose-Ackerman, S. (2005). Electoral Rules and Constitutional
Structures as Constraints on Corruption. British Journal of Political Science,
35(4), 573–606.
Persson, T., Tabellini, G., & Trebbi, F. (2003). Electoral Rules and Corruption.
Journal of the European Economic Association, 1(4), 958–989.
Rose-Ackerman, S. (1999). Political Corruption and Democracy. Connecticut
Journal of International Law, 14, 363–378.
Rose-Ackerman, S. (Ed.). (2006). International Handbook on the Economics of
Corruption. Cheltenham: Edward Elgar.
7
Decentralization

Decentralization is often seen as a means of reducing corruption. This


chapter examines the arguments supporting or contradicting this view
and their empirical validity. Decentralization implies the transfer of
some components of central government responsibilities to local or
regional public bodies. It can be political, fiscal, or administrative. The
most important channels through which decentralization can affect cor-
ruption are accountability, capture, and interjurisdictional competition.
Accountability is based on the idea that citizens are better informed of
local conditions, which allows them to better evaluate the performance
of local government. Capture refers to situations where public authori-
ties and some interest groups become so interdependent that economic
decision processes are distorted. Finally, interjurisdictional competition
refers to the possibility that different local governments compete with
one another to attract investment. This might reduce corruption when
investors choose locations which establish market-friendly local laws
and regulations and fight bribes. The evidence shows that the impact of
decentralization is, in general, corruption-reducing but that it depends
on other factors. Decentralization reduces corruption in countries with
good monitoring (e.g., freedom of the press) and high education levels.

© The Author(s) 2018 189


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1 Expected Impacts of Decentralization


on Corruption
Electoral rules are not the only aspects of democratic systems which
have spurred an economic debate about the impact on corruption.
Decentralization is another feature of democratic systems which gen-
erates a rich discussion. Briefly defined, decentralization refers to the
transfer of some strands of central government tasks to local or regional
public bodies. The legal framework of decentralization does not assign
it the task of fighting corruption. However, the change in the social
and political environment that should come with decentralization is
expected to affect corrupt behaviors. In particular, the close interaction
between citizens and local authorities is an important channel through
which the effect is expected to operate.
Over the last two decades, decentralization has been at the center
stage of policy experiments in many developing and transition coun-
tries of Latin America, Africa, and Asia. In the two largest countries of
the world, China and India, decentralization has been considered as the
major institutional framework in the context of their impressive indus-
trial growth. International institutions such as the World Bank (WB)
have put decentralization at the heart of their reform agendas (Bardhan
2002).
One important difficulty when tackling the effects of decentral-
ization concerns the differences in the definitions used by various
authors. Political scientists are more interested in the political decen-
tralization of government systems, economists in fiscal decentralization,
and administrative scientists in the decentralization of administrative
structures. Political decentralization refers to some degree of trans-
fer of decision-making power to local officials who are elected by the
local population. Political decentralization often requires constitutional
reforms, development of pluralistic parties, strengthening of legisla-
tures, and public participation in budgeting. Financial decentralization,
on the other hand, means that local bodies have authority to make sig-
nificant decisions regarding spending and taxation. To this end, they
must have some degree of local authority to determine the level and
7 Decentralization    
191

the nature of local expenditure (spending autonomy) and service deliv-


ery as well as some ability to impose fees and taxes (revenue collection
autonomy). Finally, administrative decentralization involves shifting
decision-making powers from central government officials to officials
located outside the capital city. Moreover, a source of further ambiguity
concerns the level of decentralization. The literature on federalism tra-
ditionally considers the region or province, one step below the national
government, as the relevant level of decentralization. In contrast, many
recent analyses of decentralization in developing countries focus on
lower levels of government, at the municipal or village level.
For our purpose, the main question concerns the relationship
between decentralization and corruption: Does decentralization lead
to more or less corruption? The responses that have been advanced in
support of one or the other effect can be grouped into two sets of argu-
ments (Bardhan 2002). One concerns the impact of decentralization on
accountability and democracy. The other is based on the effect of decen-
tralization in terms of interjurisdictional competition. The accountabil-
ity argument considers that on the one hand, decentralization can lead
to better-informed decisions concerning taxation or expenditure alloca-
tions. However, such decisions are made by agents whose interests may
differ from those of citizens and lead to abuse of power. On the other
hand, citizens are also better informed about local conditions, which
allows them to better evaluate the performance of local government
officials. Decentralization then becomes a means for citizens to evaluate
the performance of officials and to decide whom to appoint and whom
to fire. However, the literature warns against another risk of decentrali-
zation, namely capture of local government by elites. Capture refers to
situations where public authorities and some interest groups become
so interdependent that economic decision processes are distorted.
Some argue that the risk of capture is higher at local than national level
because media coverage of specific scandals is lower at the local level
and local officials are to some extent isolated and more vulnerable to
manipulation. Others consider the risk of capture higher at the national
level because of the greater need for funds to finance campaigns and
the greater difficulty for citizens to evaluate candidates on nationwide
issues.
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K. Sekkat

Interjurisdictional competition refers to the risk that different local


governments may compete with one another to attract investment. In
theory, investors choose locations with disciplined local government
officials who care about establishing market-friendly local laws and
regulations and fighting bribes. They avoid locations with poor gov-
ernance, high levels of corruption, and low provision of necessary infra-
structure. However, too much competition for capital can result in
negative externalities across jurisdictions. A local government may seek
to attract investors away from other regions by offering them oppor-
tunities to evade central government taxes and regulations. While the
potential benefit may go to the local government, the cost is borne by
other regions. Since each local government has the same incentive, the
final outcome could be nil or negative for the country as a whole. The
effects of decentralization and the related interjurisdictional competi-
tion will depend on which of these strategies is more effective at attract-
ing private investors. This depends on numerous factors and can only be
answered through empirical studies.

2 Actual Impacts of Decentralization


on Corruption
Fisman and Gatti (2002) offer an early cross-country study of the rela-
tionship between fiscal decentralization and corruption. The empiri-
cal model explains the degree of corruption in a country in terms of a
measure of decentralization and a number of control variables. Controls
include GDP per capita, civil liberties, the size of government, popula-
tion, openness to trade, and ethnic fractionalization. The sample con-
tains around 60 developing and developed countries and covers the
period 1980–1998. The measure of corruption comes from the ICRG.
Decentralization is measured as the share of sub-national (state and
local) spending in total government spending (state, local, and central).
The results show a very strong negative association between decentral-
ization and corruption, meaning that fiscal decentralization is strongly
and significantly associated with lower corruption. This association
7 Decentralization    
193

is consistent and robust to controlling for a wide range of potential


sources of omitted variable bias as well as endogeneity bias.
Gerring and Thacker (2004) focus on the relationship between cen-
tralization1 and parliamentarism on one hand and corruption on the
other. The study includes 125 countries for the period 1997–1998.
Centralization is defined here as a political system where the national
government is sovereign relative to its territorial units. Parliamentarism
concerns systems in which the executive is chosen by, and accountable
to, an elective body. It is expected that centralization and parliamenta-
rism are inversely correlated with political corruption. Moreover, such
a relationship is expected to be causal, which means that centralization
and parliamentarism lower corruption. These expectations are based on
the assumptions that fewer veto points and a more hierarchical arrange-
ment of political institutions foster accountability and result in lower
levels of corruption.
The indicators of corruption are the WB and TI indexes. The indi-
cator of centralization is based on the territorial pattern of government
and on the division of power between the lower house and the upper
house. The territorial pattern of government distinguishes non-federal,
semi-federal, and federal government. The division of power is based on
whether there is no upper house or a weak upper house and whether
the upper house is not dominated by the lower house. Parliamentarism
is based on dummies distinguishing presidential, semi-presidential, and
parliamentary systems. Controls include per capita GDP, trade open-
ness, value added in industry, value added in agriculture, agricultural
labor as percentage of labor force, legal origin, religion, and democracy.
The findings are that centralized and parliamentary forms of gov-
ernment help reduce the level of corruption. The causal effect works
through openness, party competition, decision rules, and other factors.
In other words, it is not just the number of “veto points” or “account-
ability” which matter. Rather, the effect of centralization and parlia-
mentarism works through multiple channels to influence corruption
outcomes.

1In fact, the author uses the term unitarism instead of centralization.
194    
K. Sekkat

Altunbas and Thornton (2012) investigate the relationship between


the degree of fiscal decentralization and corruption using a dataset com-
prising 64 developed and developing economies for the period 1995–
2008. Specifically, the paper examines whether countries in which a
larger share of fiscal revenues and expenditures (high degree) is located
at the level of sub-national government are more or less corrupt. The
indicator of corruption is the index of corruption in government pro-
duced by the ICRG. Fiscal decentralization is measured through four
indicators: (i) sub-national government revenues (state and local), (ii)
tax revenue, (iii) expenditure, and (iv) compensation of employees.
Each indicator is taken at the local level as a percentage of general gov-
ernment revenues and expenditures.
The analysis also uses interaction terms in order to distinguish
whether the effect of the degree of decentralization on corruption
depends on the existence of administrative sub-national autonomy, such
as a federal constitution, direct election of the bottom tier of govern-
ment or constitutional provisions allowing for some autonomy at the
local level. Control variables are political accountability measured by an
index of press freedom, duration of democracy, a dummy for presiden-
tial democracy, real GDP per capita, population, a dummy for major
fuel exporters, and the degree of ethnic fractionalization.
The results provide strong support for the view that countries in
which a larger share of fiscal revenues and expenditures is located at the
level of sub-national government are less corrupt. However, sub-na-
tional administrative decentralization appears to reduce the beneficial
impact of fiscal decentralization on corruption, which suggests that fis-
cal decentralization is most effective in reducing corruption when the
use of these resources is largely directed by central government.
Goel and Nelson (2011) focus on the structure of local government.
Local government structure is assessed both in terms of the scope of ser-
vices offered and the degree of fragmentation. The measure of the scope
of services distinguishes between multi-purpose (general-purpose) and
single-purpose units of local government. The degree of fragmentation
is the number of units of local government serving a state’s population.
There are reasons to expect that both the scope and degree of fragmen-
tation of local governments could influence the level of corruption in
7 Decentralization    
195

a state. Local governments with responsibilities that are broad in scope


have more potential gains from corruption, while it is harder for citi-
zens to monitor them. In contrast, citizens residing in jurisdictions that
provide specific services may be closely tied or related to elected officials
and this may act as a corruption deterrent.
The analysis is conducted for the USA. For each state, corruption is
measured by the number of convictions for the abuse of public office
per 100,000 people and focuses only on convictions that result from
federal prosecutions. The data are averaged over three five-year time
periods: 1993–1997, 1998–2002, and 2003–2007. Corruption is
explained by the number of normalized (per 100,000 people) local gov-
ernment units in state, local government expenditures as a share of total
state-local government expenditures, real GDP per capita, population,
etc. A large (normalized) number of local government units in a state
imply that each unit serves on average a small population. It is then
associated with a more fragmented local government structure. Control
variables include per capita GDP and population.
The evidence shows that both the size and scope of local government
can explain the number of public officials convicted of corruption in
a state. In particular, more general-purpose governmental units serving
a given population are associated with greater levels of corruption. The
evidence regarding the effects of special-purpose government units is,
however, mixed. Greater fiscal decentralization is associated with lower
levels of corrupt activity. This is interpreted as the result of greater trans-
parency and accountability of spending at the local level.
The impact of the degree of press freedom on the relationship
between decentralization and corruption is investigated by Lessmann
and Markwardt (2010) using a cross section of 64 countries. Three
measures of corruption are used as dependent variables: the ICRG,
WB, and TI indexes. Two explanatory variables are of special interest:
decentralization and freedom of the press. Decentralization is measured
using different dummies capturing whether a federal constitution exists,
the number of vertical government tiers, the share of local expendi-
tures (or revenues) relative to total government expenditures (or reve-
nues) and the share of sub-national government employment in total
government employment. The indicator of press freedom is drawn from
196    
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Freedom House. To examine how the relationship between decentral-


ization and corruption is affected by freedom of the press, an interac-
tion term between decentralization and press freedom is introduced into
the regression. Control variables include population, per capita GDP,
the degree of openness, ethnic fractionalization, and the share of gov-
ernment expenditures in GDP. To avoid causality problems, the inde-
pendent variables are averaged for the period 1980–1995, while the
dependent variables are averages over 1996–2000. The results show no
impact of decentralization on corruption in general. However, in coun-
tries with effective monitoring (free press), decentralization has a neg-
ative impact on corruption. In contrast, if monitoring is not effective,
decentralization increases corruption.
Albornoz and Cabrales (2013) test the hypothesis that the impact of
decentralization depends on political competition. The authors postu-
late that decentralization is associated with lower levels of corruption
only where political competition is sufficiently high. To implement
the test, data for 110 countries covering a period between 1996 and
2007 are used. Corruption measures are drawn from the ICRG, TI
and WB indexes. Decentralization is defined according to the extent
to which sub-national levels of government make decisions about tax-
ation and regulation. Political competition is measured by the WB
Voice and Accountability Indicators. This index captures perceptions
about how the country’s citizens are involved in selecting their govern-
ment. Another indicator of political competition used in the study is
the Freedom House Index of Political Freedom. The results support the
notion that the relationship between fiscal decentralization and corrup-
tion is conditional on political competition: Decentralization is associ-
ated with lower levels of corruption where levels of political competition
are sufficiently high.
In contrast to the previous studies, Henderson and Kuncoro (2004)
focus on a reverse causality between decentralization and corruption.
The paper examines how decentralization can be used by local politi-
cians to issue regulations that allow them to collect more bribes. It takes
the example of Indonesian localities which are hampered by insufficient
revenues to pay competitive salaries while funding demanded levels of
public services. Effective local tax rates are limited at different levels
7 Decentralization    
197

across localities by central government. In addition, intergovernmental


transfers are limited. As a result, local governments rely on “any” means
to fund their local expenditures. Regulation generates direct revenues in
the form of taxes plus indirect revenues in the form of bribes. The latter
is capitalized into wages paid by localities to public officials.
Licensing is one of the two main sources of bribe activity. It also con-
stitutes the most important source of local discretionary revenues. Firms
must procure a variety of licenses, both to start and then to operate a
business. The analysis is conducted at a level of locality equivalent to a
US county. The dataset was collected in 2001–2002 by the University
of Indonesia and covers 1808 firms in 64 (out of about 300) local gov-
ernment areas. Respondents were asked about the ratio of bribes and
taxes to total costs. The empirical analysis estimates the effect of differ-
ential revenue sources on the variation in harassment measured as the
number of licenses across localities. The results show that a large reduc-
tion in the main form of measurable regulation (licenses) is associated
with better-funded localities. Localities having sufficient revenue sources
do not need to rely on “red tape” and corruption to effectively compen-
sate local officials and raise local revenues. It is also found that regula-
tion declines with increased education of local officials.
Fan et al. (2009) use the WB’s World Business Environment Survey
to explore the relationship between decentralization and firms’ actual
experiences with corruption. The survey is conducted with managers
from more than 9000 firms in 1999–2000 in more than 80 countries.
The two questions of interest for our purposes are: “Is it common for
firms in your line of business to have to pay some irregular ‘additional
payments’ to get things done?” and “On average, what percent of total
annual sales do firms like yours typically pay in unofficial payments/
gifts to public officials?” Political and fiscal decentralization are meas-
ured based on various indicators: (i) the number of tiers of government
in the country, (ii) the average land area of the lowest tier units, (iii)
the share of sub-national tax revenues as a share of GDP, and (iv) the
share of sub-national government personnel in total civilian government
personnel. A tier is defined based on the conditions that the executive
body at that level is funded from the public budget, has authority to
administer a range of public services, and has a territorial jurisdiction.
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Firm-level control variables indicate ownership (public, foreign, and pri-


vate domestic). Country controls are GDP per capita, share of imports
in GDP, a dummy for democracy, status as a former British colony, the
share of minerals and fuels in manufacturing exports, and the propor-
tion of Protestants in the population.
The results show that in countries with a larger number of tiers, firms
reported that bribery was both more frequent and costlier to firms.
Other things being equal, in a country with six tiers of government
(such as Uganda), the probability that firms reported “never” being
expected to pay bribes was 0.32 lower than the same probability in a
country with two tiers (such as Slovenia). The effects are strongest in
developing countries.
More tiers also appeared to be associated with more frequent bribery
in relation to government contracts, connection to public utilities and
customs. However, the effect of more tiers is particularly strong when it
comes to obtaining business licenses and tax collection. As the number
of tiers in a country increases, its effect cancels out other factors related
to bribery, such as the size of firms or the country’s religious tradition.
Interestingly, the responses seem to confirm previous findings that
giving local governments a larger stake in locally generated income can
reduce their bribe extraction. This effect holds for both developing and
developed countries. The effect is, however, stronger among developed
countries. A larger stake in locally generated income is also associated
with less frequent bribery.
Asthana (2008) presents an empirical analysis of the relationship
between decentralization of water supply provision and corruption in
India. Specifically, the paper compares the level of corruption between
the utilities run by local governments, which are defined as decentral-
ized agencies, and those run by state governments, which are defined
as centralized. The hypothesis is that the level of corruption is higher
among decentralized agencies. The study covers the rural and semi-ur-
ban areas of two large Indian states: Madhya Pradesh and Chhattisgarh.
The data are obtained from a large survey covering small towns and vil-
lages with a population of more than 2000.
Different measures of corruption are used and include the propor-
tion of people who acknowledge paying bribes and the amount of
7 Decentralization    
199

corruption related to water bills, repairs, and new connections. These


constitute the dependent variables. The explanatory variables are educa-
tion, income, and a dummy variable which takes a value of 1 for utili-
ties run by local government.
The results confirm that corruption in water supply agencies run by
local government is higher than in the case of agencies run by regional
government. Among respondents, 51% had paid bribes in the case of
decentralized agencies and 41% in the case of centralized agencies. The
difference is statistically significant. After controlling for other factors,
the proportion of people who paid bribes in matters relating to bills is
9% higher in the case of decentralization as compared with centrali-
zation. The results for other water supply-related matters confirm that
the level of corruption in water supply agencies run by local govern-
ment is higher than in the case of agencies run by regional government.
Regression results also show that educational level has a negative effect
while income level has a positive effect on corruption.
As summarized by Rose-Ackerman (2006), the effects of decentrali-
zation on corruption and government accountability are complex. This
implies that decentralization by itself is not a panacea for problems of
accountability and must be accompanied by institutional policies to
prevent excessive capture of local government. These policies include
fostering literacy, expanding information campaigns and monitoring by
civic associations and media.

3 Conclusion
Decentralization can affect corruption through accountability, capture,
and interjurisdictional competition. Assuming that citizens are bet-
ter informed about local conditions, decentralization is supposed to
improve local government accountability. However, the reduced size
of jurisdictions under decentralization as compared with centralization
makes local authorities more vulnerable to the strategies of certain inter-
est groups. Finally, in order to attract investment, local governments
may compete with each other in terms of establishing market-friendly
local laws and regulations and fighting bribery.
200    
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The empirical analyses suggest that fiscal decentralization is strongly


and significantly associated with lower corruption. This seems to be a
result of greater transparency and accountability on spending at the
local level. However, administrative decentralization reduces the ben-
efit from fiscal decentralization in terms of corruption. This suggests
that fiscal decentralization is most effective in reducing corruption
when the use of resources is largely directed by central government.
Decentralization is also associated with lower levels of corruption
under sufficiently high levels of political competition. A large reduction
in the extent of measurable regulation associated with better-funded
localities are effective anti-corruption tools. Local governments which
receive sufficient revenues do not seek to use “red tape” and corruption
to effectively compensate for a lack of resources. Likewise, giving local
government a larger claim on locally generated income can reduce bribe
extraction. Finally, the degree of literacy, citizen monitoring, and press
freedom are crucial for decentralization to reduce corruption.

References
Albornoz, F., & Cabrales, A. (2013). Decentralization, Political Competition
and Corruption. Journal of Development Economics, 105(C), 103–111.
Altunbas, Y., & Thornton, J. (2012). Fiscal Decentralization and Governance.
Public Finance Review, 40(1), 66–85.
Asthana, A. N. (2008). Decentralization and Corruption: Evidence from
Drinking Water Sector. Public Administration and Development, 28(3),
181–189.
Bardhan, P. (2002). Decentralization of Governance and Development. Journal
of Economic Perspectives, 16(4), 185–205.
Fan, C. S., Lin, C., & Treisman, D. (2009). Political Decentralization and Corruption:
Evidence from Around the World. Journal of Public Economics, 93(1), 14–34.
Fisman, R., & Gatti, R. (2002). Decentralization and Corruption: Evidence
from US Federal Transfer Programs. Public Choice, 113(1), 25–35.
Gerring, J., & Thacker, S. C. (2004). Political Institutions and Corruption:
The Role of Unitarism and Parliamentarism. British Journal of Political
Science, 34(2), 295–330.
7 Decentralization    
201

Goel, R. K., & Nelson, M. A. (2011). Government Fragmentation Versus


Fiscal Decentralization and Corruption. Public Choice, 148(3), 471–490.
Henderson, J. V., & Kuncoro, A. (2004). Corruption in Indonesia (National
Bureau of Economic Research, WP 10674).
Lessmann, C., & Markwardt, G. (2010). One Size Fits All? Decentralization,
Corruption and the Monitoring of Bureaucrats. World Development, 38(4),
631–646.
Rose-Ackerman, S. (Ed.). (2006). International Handbook on the Economics of
Corruption. Cheltenham: Edward Elgar.
8
Regulation

Regulation encompasses a number of instruments and covers various


economic, social, and environmental fields. It concerns diverse matters
such as entry into some markets (e.g., law, accountancy, and medicine),
control of certain prices or the setting of rules governing the function-
ing of business, or individual activities. Regulation is seen either as seek-
ing to meet the “public interest” or as a response to specific “interest
groups”. The first view stipulates that regulation is a response to pub-
lic demand to correct inefficient or inequitable market outcomes. The
second view emphasizes the notion of “capture”, whereby regulation is
designed to favor certain interest groups. In relation to corruption, reg-
ulation is at risk at two levels: setting and implementation. Regulation-
setting is suspected of opening the door to corruption in order to get
certain legislation proposed and passed. As regards implementation,
bureaucrats enjoy, in general, a large degree of discretion in the interpre-
tation, speed, and complexity of the process. This enables them to ask
for bribes. The empirical evidence suggests that regulation is less con-
ducive to corruption when the procedures for setting the rules are open
and transparent and implementation is regularly audited.

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1 Expected Impacts of Regulation


on Corruption
Regulation is, in general, justified on the grounds that some “market
failures” must be corrected for. These failures concern imperfect com-
petition, technological spillover, information asymmetry, coordina-
tion among agents, and other externalities. A classic way in which the
market fails is when firms (or individuals) do not take account of the
costs or benefits their activities imply for third parties, i.e., externalities.
When this happens, the activities may be pursued too intensely or not
enough, resulting in losses for third parties and society in general. For
example, without regulation, a manufacturing plant may discharge dan-
gerous chemicals into the air and water, causing harm to its neighbors.
Governments respond to this risk by setting standards for emissions or
the requirement to use specific technologies.
Two main views have traditionally dominated the debate on regula-
tion. One emphasizes the “public interest”, saying that regulation is a
response to public demand to correct inefficient or inequitable market
practices. The other favors the notion of “capture”. Under this view,
regulation is supplied in response to the demands of interest groups
which seek to maximize the gains for their members. Irrespective of
the motivation, regulation is seen as responding to some demand. In
1971, George Stigler proposed a path-breaking approach which clarifies
this dimension of regulation. While his theory seems at first glance to
be a refined version of long-established views, it had the great merit of
being well-grounded in strong economic theory. In particular, his the-
ory considers that people pursue specific objectives and do so rationally.
The coercive power of government can be used to fulfill the objective
of particular individuals or groups. Hence, economic regulation can
be viewed as a good whose allocation follows the laws of supply and
demand (see Posner 1974).
When it comes to the relationship between regulation and corrup-
tion, the problem is posed at two levels (Parker and Kirkpatrick 2012;
Aidt and Dutta 2008), i.e., when rules are set and when they are imple-
mented. As regards rule-setting, the theory presented above postulates
8 Regulation    
205

that regulation is driven by special interest groups lobbying for legisla-


tive changes for their own personal gain. This opens the door to cor-
ruption to ensure that such legislation is proposed and passed. At the
implementation level, bureaucrats enjoy, in general, a large degree of
freedom in the interpretation, speed, and complexity of the process.
Even if a request for permits, licenses or tax benefits fulfills the require-
ment of the law, bureaucrats can exploit their discretionary power and
asymmetric information in order to extract bribes. Alternatively, a reg-
ulated firm could bribe the regulator to set a higher price or not to
enforce a particular regulatory statute. Similarly, a firm could seek to
bribe an auditor to hide the fact that the firm made a larger profit than
it claimed. Once they became aware of such costs of regulation, many
countries started devoting efforts to reducing red tape and the regula-
tory burden on business as well as to more carefully examining the mer-
its of new and existing regulations. Some countries have made notable
progress in improving regulatory practices, but other nations are lagging
behind.

2 Actual Impacts of Regulation


on Corruption
At the empirical level, a first important question is whether regulation
causes corruption. Djankov et al. (2002) tackle this question by exam-
ining whether countries with heavier regulation of entry have higher
corruption. The authors construct a database describing the regulation
of entry by start-up companies in 75 developed and developing coun-
tries. The focus is on the steps that an entrepreneur needs to take to
begin operating legally. The data were collected using available written
information from government publications, WB and USAID-sponsored
studies, and the Internet. The information is completed and dou-
ble-checked with the assistance of private companies or through direct
contact with government agencies.
Three measures of entry regulation are used: the number of proce-
dures that firms must go through, the official time required to complete
206    
K. Sekkat

the process, and its official cost, i.e., the cost of entry regulation based
on all identifiable official expenses. The CPI for 1999 is explained in
terms of the number of procedures, the time required to complete the
process, and the cost of entry regulation.
The results show that more regulation is significantly associated with
more corruption. The effect is also large in economic terms. By examin-
ing separately the relationship between entry regulations and corruption
in countries with above and below world median income, the results
show that regulations actually have a stronger effect on corruption in
the sub-sample of richer countries.
Recanatini et al. (2005) investigate which features of public agen-
cies influence corruption in eight Latin American and African coun-
tries. More specifically, the objective is to explain the diverse patterns
of corruption across and within countries on the basis of specific fea-
tures of the internal organization of each agency and other agency-level
variables.
To describe the organization of each agency, three continuous vari-
ables, each measuring a specific feature of the agency, are constructed.
The first variable refers to auditing and provides information on
whether decisions on personnel and budget management, as well as pro-
curement, are subject to regular internal or external audits. The second
variable concerns openness and shows whether the same set of decisions
is publicly announced inside and outside the public agency and whether
agencies’ financial status is regularly disclosed to the public. The third
variable pertains to merit and assesses whether decisions on personnel
management are based on professional experience, merit, performance,
and the level of education. These indicators vary from 0 to 100.
To differentiate the type of agency, a dummy variable which takes
the value 1 if the agency is part of the judicial system is constructed.
Another dummy variable equals 1 if the agency operates exclusively at
the municipal level. Moreover, the analysis distinguishes between agen-
cies with a popularly elected head, agencies where the head is polit-
ically appointed but cannot be removed at will by the political body,
and those where the head can be dismissed by politicians (e.g., a central
banker). Finally, to take account of the “demand” side of corruption,
8 Regulation    
207

three types of typical customer of the agency are considered: families,


firms, and foreigners.
The preceding variables are used to explain the difference in corrup-
tion across agencies. The authors use measures of overall corruption as
well as of specific types of corruption such as corruption in public pro-
curement, corruption in personnel management, and legal and regula-
tory corruption. Control variables include average levels of education,
average income, and large firms’ concentration.
The results show that corruption varies greatly not only between
countries but also within countries. The internal design of the agency is
systematically associated with perceptions of corruption, both by insid-
ers and by its customers. Corruption is lower when internal decisions
on budget, procurement, and personnel are regularly audited, and when
these same decisions are taken with open and transparent procedures.
Corruption in personnel is also lower when such decisions are based
on merit and clearly stated professional criteria. Interestingly, agencies
whose head is popularly elected are systematically more corrupt and
have worse internal organizations. The opposite holds for independ-
ent agencies whose head is appointed, but not removable by political
bodies. Finally, corruption also seems to be influenced by demand-side
factors and not just by its internal organization. Agencies that provide
services to firms (rather than households) are more prone to corruption.
Berg et al. (2012) are interested in how different dimensions of regu-
lation affect corruption. The investigation is conducted for the telecom
sector. The dataset includes 3731 firms from 26 transitional economies.
The dependent variable is corruption and is constructed from responses
to the following question contained in the World Business Environment
Survey: “Do firms like yours typically need to make extra, unofficial
payments to service providers to get connected to telephone?” The main
explanatory variables are measures of the regulation systems, ownership
of the telecom firm (public, partially public, or private), the level of
competition in local telephone service, and the tariff level (including the
installation fee and subscription). The authors distinguish two dimen-
sions of regulation: regulatory substance, which includes tariff setting,
quality of service standards, accountants’ ratio, and periodic review, and
regulatory governance, which includes independence of the regulator,
208    
K. Sekkat

clarity of responsibility, accountability, transparency, and participation.


Control variables include the responding firm’s ownership, size, and
sector.
The results show that strong regulatory substance (the content of reg-
ulation) and regulatory governance reduce corruption and that com-
petition and privatization reduce corruption. The effects of regulatory
substance on corruption are stronger in countries with state-owned or
partially state-owned telecoms, greater competition, and higher tele-
communication fees. Bureaucratic quality exerts substitution effects to
regulatory substance in deterring corruption.
Dreher and Schneider (2010) focus on one determinant of cor-
ruption and on how corruption exerts a feedback effect on this deter-
minant. The determinant is the existence of a shadow economy.
Theoretical analyses are inconclusive about the linkages between cor-
ruption and the shadow economy. Too much regulation can prompt
producers to go underground to escape the cost of complying with reg-
ulation, which may constrain the ability of tax officials, for instance, to
ask for bribes and thus reduce corruption. Similarly, a highly corrupt
tax administration may prompt entrepreneurs to go underground,
which increases the size of the shadow economy. But producing in
the shadow economy also exposes producers to inspectors and might
increase corruption. Moreover, the linkage may differ depending on
whether developing or developed countries are considered. In developed
countries, corruption often consists in bribing officials to get govern-
ment contracts. Since these contracts are then run in the official econ-
omy, corruption in these countries is associated with a smaller shadow
economy. In developing countries, corruption often takes place in order
to facilitate shadow economy activities. To get additional income from
a shadow economy entrepreneur, it is natural for public officials to ask
for bribes and thus benefit from the shadow market. Accordingly, the
shadow economy reinforces corruption.
The empirical analysis is based on a cross-section of 98 countries
over the period 1999–2002. Data for the shadow economy are taken
from Schneider (2004). To measure corruption, the ICRG, TI, and WB
indexes are used together with an index based on a structural model of
8 Regulation    
209

the causes. The latter is the fitted values of the regression of corruption
on the rule of law, school enrolment, latitude, German legal origin, and
age of democracy. Two equations are estimated. One explains corrup-
tion in terms of the shadow economy and control variables. The other
explains the shadow economy in terms of corruption and control vari-
ables. Control variables are tax rates, government revenues, measures of
regulation, and institutional quality.
The results show no robust relationship between corruption and the
size of the shadow economy when the traditional perception indexes
are used. When an index based on a structural model is used, how-
ever, corruption and the shadow economy are complements in coun-
tries with low income, but not in high-income countries. In general,
we must admit that we have no clear and robust pattern that con-
firms our hypotheses among the range of indicators and specifications
employed.

3 Conclusion
Regulations are issued in response either to public demand to correct
inefficient or inequitable market outcomes or to demand from interest
groups seeking gains for their members. Regulation creates opportuni-
ties for corruption when rules are set and when they are implemented.
The empirical evidence shows that, in general, more regulation is sig-
nificantly associated with more corruption. However, the effects vary
greatly not only between countries but also within countries. They are
much lower when decisions on budget, procurement, and personnel are
regularly audited and are taken with open and transparent procedures.
Corruption of people in charge of enforcing regulation is also lower
when they are hired on the basis of merit and clearly stated professional
criteria. Elected heads of independent regulation agencies are very often
more corrupt and implement bad internal organizations. The opposite
holds when the heads are appointed, but not removable by political
bodies. Finally, agencies that provide services to firms are more prone to
corruption than those providing services to households.
210    
K. Sekkat

References
Aidt, T. S., & Dutta, J. (2008). Policy Compromises: Corruption and
Regulation in a Democracy. Economics and Politics, 20(3), 335–360.
Berg, S. V., Jiang, L., & Lin, C. (2012). Regulation and Corporate
Corruption: New Evidence from the Telecom Sector. Journal of Comparative
Economics, 40(1), 22–43.
Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2002). The
Regulation of Entry. The Quarterly Journal of Economics, 117(1), 1–37.
Dreher, A., & Schneider, F. (2010). Corruption and the Shadow Economy: An
Empirical Analysis. Public Choice, 144(1), 215–238.
Parker, D., & Kirkpatrick, C. (2012). Measuring Regulatory Performance. The
Economic Impact of Regulatory Policy: A Literature Review of Quantitative
Evidence. OECD. Expert Paper No. 3.
Posner, R. A. (1974). Theories of Economic Regulation. Bell Journal of
Economics, 5(2), 335–358.
Recanatini, F., Prati, A., & Tabellini, G. (2005, November 3–4). Why Are
Some Public Agencies Less Corrupt Than Others? Lessons for Institutional
Reform from Survey Data. In Sixth Jacques Polak Annual Research
Conference, IMF. https://pdfs.semanticscholar.org/ef94/d7d211859a-
6503dadb7bde58aff0acf3005a.pdf. Accessed 9 May 2018.
Schneider, F. (2004). The Size of the Shadow Economies of 145 Countries All
Over the World: First Results over the Period 1999 to 2003 (IZA Discussion
Paper Series, No. 1431).
9
Justice

In the case of problems related to regulation, political competition,


or decentralization, citizens can appeal to justice when the rules are
not respected or if application of the rules harms their own interests.
However, access to and the functioning of justice are not immune to
corruption. Three main issues emerge concerning corruption in justice:
access to justice, functioning of the judicial system, and punishment
of corrupt acts. Access to justice concerns not only the cost for citizens
to have their rights upheld but also the human and financial resources
(often limited in poor countries) that the state should devote to this
task. Suggested solutions to the access problem include the use, when
possible, of alternative means of conflict resolution. A well-functioning
judicial system requires staff, such as judges, prosecutors, and clerks, to
be both independent and accountable. Here, the debate centers on the
appointment process (e.g., election or nomination by the government
or other bodies) and oversight. The issue of punishment concerns whom
to punish: the briber, the recipient, or both? In other words, is paying a
bribe worse than accepting a bribe, or vice versa? The problem is further
complicated by the existence of other participants in corrupt transac-
tions, such as intermediaries, “advisers”, and other facilitators.

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1 Expected Impacts of Justice on Corruption:


Structural and Procedural Aspects
In this section, we distinguish two important dimensions in the role of
the judiciary in curbing corruption. The first dimension concerns cor-
ruption of the judicial system. The question concerns which structure
and operating approach minimize the risk of corruption in the judici-
ary. The second dimension investigates which sentencing approach is
most effective at deterring corruption.
Access to justice is an important driver of development and equity.
It refers to the ability of citizens to get legal information and legal ser-
vices and resolve disputes. It includes access to court procedure, to legal
aid, and to extra-legal mechanisms to resolve conflicts. Justice is an
important instrument in the fight against corruption. However, access
to justice is often problematic. It is not easy for claimants with limited
resources or knowledge. Moreover, access to justice can be hampered
by various obstacles, such as insufficient or poorly trained staff (e.g.,
judges and clerks) or inadequate infrastructure (e.g., courts and com-
puter systems). These problems can be magnified by indiscriminate
access to justice on the grounds of equity and fairness (Botero et al.
2003). Indiscriminate access can lead to excessive use of the courts,
which, instead of increasing fairness, floods courts with many trivial
cases and highly impacts their effectiveness. According to Transparency
International (2007), as of February 2006, 33,635 cases were pending
in the Indian Supreme Court, which has 26 judges, 3,341,040 cases
were in the high courts, which have 670 judges, and 25,306,458 cases
were pending in the 13,204 subordinate courts. This vast backlog leads
to long adjournments and prompts people to pay to speed up the pro-
cess. Estimates in 1999 suggested that “at the current rate of disposal it
would take another 350 years for disposal of the pending cases even if
no other cases were added”.
While justice is in principle a strong instrument against corrup-
tion, judges and other judicial staff may be themselves corrupt either
owing to rent-seeking or because of political pressures. According to
Transparency International (2007), political interference is the most
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213

problematic when it comes to the judiciary. Political interference


can take the form of threats, intimidation or manipulation of judicial
appointments, salaries, and conditions of service. It is difficult to make
a harassment case before a court based on these behaviors because they
are close to some recommendations seeking to make the administration
function more efficiently, as we will see below.
The key to preventing political pressure is constitutional and legal
mechanisms that protect judicial staff. This protection ensures that
courts, judges, and their judgments are independent. However, the
design of these mechanisms depends on the whole legal system, which
is part of a broader set of cultural rules and customs and varies consider-
ably across countries. There are four predominant legal systems around
the world: (i) common law, (ii) civil law, (iii) socialist law, and (iv) reli-
gious law. Moreover, a country’s legal system is often a mix of the four
predominant systems, especially in developing countries.
A way to insulate judicial staff from political pressure is to have them
be elected. While most countries around the world use the appointment
system for public officials, a large number of US states rely on direct
elections for prosecutors and regulators. Judicial elections began in 1789
in Georgia. Mississippi adopted elections for all state judges in 1832.
Since 1846, a large number of US states have chosen to hold elections.
There are three main types of elections: partisan elections where candi-
dates run for office with a partisan label, nonpartisan elections where
candidates have no partisan label, and retention elections where the
judge does not face a challenger on the ballot and wins re-election if
a specified percentage of votes approve his or her retaining the seat.
Retention elections are seen as better insulating judges from the typical
pressures of contestable races (Transparency International 2007).
An important risk is that too much protection insulates judicial staff
from accountability. Judges and judicial staff have numerous means to
manipulate the judicial process. They can allow or exclude evidence,
set court dates to favor one party or another, inaccurately summarize
court proceedings, distort witness testimony, and “lose” files. Moreover,
judicial corruption spans all steps of a judicial procedure, from pre-trial
to trial proceedings, settlement and ultimately enforcement of deci-
sions. The appeals process is not exempt from opportunities for judicial
214    
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corruption either. Moreover, appeals tend to favor the party with large
resources, meaning that poorer people may not be able to pursue their
case, even if legitimate, beyond the first instance. In sum, reducing cor-
ruption in justice therefore requires a subtle balance between independ-
ence and accountability.

2 Actual Impacts of Justice on Corruption:


Structural and Procedural Aspects
Buscaglia (2001) examines the factors that explain corruption in the
judiciary. The study is related to pilot programs in Argentina, Ecuador,
and Venezuela. The programs contained policy prescriptions targeting
reform of the judiciary and implemented in the three countries between
1993 and 1995. Annual surveys were conducted between 1991 and
1999; i.e., a period covering the years before and after the policy was
implemented. The questions in all surveys sought to capture the fre-
quency of different corrupt practices (fraud, embezzlement, court-re-
lated political clientelism, politically or financially motivated changes
in rulings, politically or financially motivated changes of venue, speed
money, and extortion) within a sample of 450 commercial cases in 27
pilot courts.
The dependent variable is the year-to-year change in the frequency
of corruption by court and country. There are six explanatory variables
of interest: the number of procedural and administrative steps followed
in each of the 450 cases, the times to disposition for each of these cases,
the proportion of all administrative and jurisdictional tasks concen-
trated in the hands of each employee that is allocated through “infor-
mal” mechanisms, the growth of alternative dispute resolution channels
(mediation, arbitration, conciliation), the weighted average real incomes
of judges, clerks, and other court personnel, and, finally, a measure of
the degree of use of court-related information technology.
The results of the regression are similar across the three countries,
and the coefficients are significant and show the expected signs except
for average real compensation, which is non-significant. A higher
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215

proportion of administrative and adjudication tasks allocated to court


personnel in an informal manner increases corruption. Longer proce-
dural times cause significant increases in corruption, which is in line
with the idea of “speed money-related corruption”. An increase in the
number of administrative and procedural steps also comes with signif-
icant increases in corruption. Information technology has a significant
negative impact on corruption. The introduction and legalization of
alternative dispute resolution cause a significant reduction in the per-
ceived frequencies of corrupt practices.
As a by-product of Buscaglia (2001), it appears that providing more
resources to the judiciary reduces corruption. Alt and Lassen (2014)
further highlight this dimension by investigating the effect of prosecu-
torial resources on corruption prosecutions and convictions. Panel data
on corruption convictions in US states from 1977 to 2003 are used to
examine how public resources available for the investigation and pros-
ecution of offenders affect the extent of corruption. The dependent
variable is corruption measured by the number of corruption convic-
tions normalized by state population. The sample counts 21,000 cases
observed between 1977 and 2003. This information is collected at the
state level.
The main explanatory variables of interest are resources. The two
measures used are the number of general attorneys in US Attorney
offices (prosecutorial resources) and the wage of public employees (a
deterrence consideration). The resources of the Attorney office are the
number of federal full-time-equivalent positions in the office by year
and judicial district normalized by state population. Three variables
measure wages: (i) average wage for state and local government, in cur-
rent dollars, (ii) ratio of state and local government wage to the aver-
age non-government wage in the state, and (iii) average wage for state
and local government, in constant dollars, adjusted for the difference in
purchasing power. Controls include real income per capita in the state,
the population share with at least high school education, inequality, size
of the state’s government, and whether the legislature and executive are
controlled by different parties (divided government).
The results show that greater prosecutorial resources result in more
convictions for corruption. Moreover, when prosecutorial resources are
216    
K. Sekkat

allowed to depend on the intensity of the work, the estimated effect of


resources on convictions is larger. Relative public sector pay has no con-
sistent effect on corruption. A divided government appears to be asso-
ciated with lower corruption, while term limits appear to be associated
with higher corruption.
Gordon (2009) focuses on another possible problem relating to the
functioning of the judiciary, namely that of partisan judgments, prose-
cutions, and convictions. The author develops a theoretical model of the
interaction between officials contemplating corruption and a prosecu-
tor deciding whether to pursue cases against them. One testable predic-
tion of the model is that biased prosecutors will be willing to file weaker
cases against political opponents than against allies.
The empirical analysis is based on two samples of state and local cor-
ruption prosecutions. The first consists of cases concluded during the
Bush administration (from 2004 to 2006). This sample contains infor-
mation on the prosecution outcomes of 222 defendants of which 204
resulted in guilty verdicts. In this sample, 84 individuals were clearly
identified as Democrats or affiliated with Democrats, and 23 individu-
als were clearly identified as Republicans or affiliated with Republicans.
The second sample consists of cases concluded during the Clinton
administration (from 1998 to 2000). It contains 223 cases of which 210
resulting in guilty verdicts. In this sample, 49 could clearly be identified
as Democrats, and 28 as Republicans.
The above figures show a difference between the two samples.
During the Bush era, the ratio of defendants is 3.65 Democrats to 1
Republican. During the Clinton era, the ratio of defendants is 1.75
Democrats to 1 Republican. These crude accounts cannot, however, be
interpreted as evidence of the existence of partisan bias because of the
many other variables in play but not taken into account. For this rea-
son, the analysis used different techniques, among which regression, to
address the purpose of the paper. A regression was conducted on each
sample separately and used as its dependent variable the difference in
sentences between Republican—and Democratic-affiliated defendants.
The main explanatory variables included whether the defendant was a
private citizen, whether he or she was an elected official, whether the
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217

sentence was approved by a judge appointed by a Democratic president,


and whether the sentence was part of a case with multiple defendants.
Estimates from all three methods strongly support the same find-
ing: There is a partisan bias. Such bias existed under both the Clinton
and the Bush eras. However, the evidence also pointed to the dispro-
portionate prosecution of Democrats under both Bush and Clinton.
Determining the difference in the bias between the two administrations
is more challenging.
Having found that corruption prosecutions in the USA are likely to
be impacted by partisan bias, the next question is whether independent
prosecutors to a better job of deterring political corruption. This is the
issue investigated by van Aaken et al. (2010) using a sample of up to 78
developed and developing countries for the years 1998–2006. One diffi-
culty in conducting such investigation is the distinction between de jure
and de facto prosecutor independence (PI). The former refers to legal
or constitutional provisions that ensure independence while the latter
focuses on independence in practice. Accordingly, the construction of
de jure independence relies on legal documents while more steps are
required to construct de facto independence.
De jure PI is based on five criteria: (i) whether the prosecution
agency is mentioned in the constitution, what the formal requirements
are to become a prosecutor, etc., (ii) the procedure for appointing, pro-
moting, transferring, and removal prosecutors from office, (iii) the right
of government members to give positive/negative instructions to pros-
ecutors, (iv) the ways to get prosecutions started, and (v) the degree of
discretion that prosecutors enjoy in pursuing their cases.
To assess de facto PI, a survey was conducted in the 78 countries and
contained six questions of interest: (i) How frequently are prosecutors
forced to retire against their will? (ii) How frequently are prosecutors
removed from office against their will? (iii) How frequently do members
of government change the legal foundations for prosecution? (iv) Has
the income of prosecutors remained at least constant in real terms since
1960? (v) Has the budget of the prosecutorial offices remained at least
constant since 1960? and (vi) How many cases are initiated by actors
other than the state prosecutors? The responses to the six questions
were combined with the number of politically motivated assassinations
218    
K. Sekkat

counted in a country to create an index of de facto independence. The


number of assassinations was drawn from Banks (2004).
To test for the impact of the two measures of PI on corruption, an
equation is estimated where the average CPI for the years 1998–2006
is explained in terms of de jure and de facto PI and a number of con-
trol variables such as real per capita income in 1990, trade openness,
population, the share of Protestants in the population, and a dummy
for former British colonies. The findings are that greater prosecutorial
independence in fact (rather than just in law) leads to lower levels of
perceived corruption. This result is quite robust across various specifica-
tions. Formal prosecutorial independence is not significantly correlated
with corruption.
Voigt and Gutmann (2015) extend the analysis of the determinants
of judicial corruption and corruption in general to more characteris-
tics of judicial organization. These characteristics include: (i) stability
of judges’ salaries, (ii) obligation for judges to extensively justify their
decisions, (iii) obligation to publish judgments, extended proof and dis-
senting opinions, (iv) average time needed to get one’s rights enforced,
(v) separation of powers measured as the number of actual veto players
in a political system, and (vi) degree of prosecutors’ monopoly power
to prosecute crimes. Measures of corruption of the judiciary are drawn
from the World Economic Forum, Transparency International, and the
World Justice Project. Control variables are real per capita income in
1990, trade openness, population, the share of Protestants in the popu-
lation, and a dummy for former British colonies.
The results show that countries face less judicial corruption if judges’
salaries have not decreased in real terms. Serious requirements for legal
justification are associated with less judicial corruption. The average
time needed to get one’s rights enforced is not significantly correlated
with corruption in the judiciary. More extended publication require-
ments are not associated with corruption. Finally, monopolization of
the power to prosecute fosters judicial corruption.
Turning to corruption at large, the dependent variable is the CPI for
the year 2013. The main explanatory variables are judicial independ-
ence (JI) from Feld and Voigt (2003), prosecutorial independence from
van Aaken et al. (2010), and judicial accountability from Voigt (2008).
9 Justice    
219

Similar control variables to those mentioned above are introduced.


The results show that the independence of the judiciary or prosecutors
is associated with lower levels of corruption. Judicial accountability is
associated with lower levels of corruption. However, judicial accounta-
bility and independence work as complements: Judicial accountability
reduces corruption only when the judiciary’s independence (including
prosecutors) is sufficiently high. More interestingly, the independence of
judges and prosecutors may increase corruption at low levels of judicial
accountability, but it is related to significantly lower corruption levels
when judges are held sufficiently accountable.
Although not directly focusing on corruption, Goelzhauser (2012)
highlights another aspect of judicial performance (case disposition
times) that may impact corruption. The theoretical argument builds
on the notion that judges who face election have an incentive to pro-
duce efforts that help their re-election. These judges face, however, dif-
ferent types of pressure. Judges that face partisan elections often bear a
significant amount of political pressure and are routinely voted out of
office. Judges who face retention elections are relatively secure, which
gives them different levels of independence but influences the degree of
their accountability. To capture differences in judicial independence, the
study uses a quasi-natural experiment in Kansas, where 17 judicial dis-
tricts use non-competitive retention elections while 14 employ partisan
elections.
The dependent variable is the median disposition time of a case in
days for each district. The independent variables include a dummy
equal to 1 for counties that use partisan judicial elections, the total
number of case filings per judge, urbanization, county ideology, the per-
centage of residents aged at least 25 and having a high school diploma,
the percentage of residents who are black, and county household
income as a percentage of the state’s median household income. The
results do not show any systematic and consistent effect of less inde-
pendence (partisan judges) on time disposal.
Another study not directly linked to corruption but useful to under-
standing the impact of judicial organization is Hayoa and Voigt (2007).
Specifically, the paper investigates why the judiciary is de facto inde-
pendent in some legal systems and highly dependent on others. Recall
220    
K. Sekkat

that van Aaken et al. (2010) discussed above showed that greater de
facto prosecutorial independence leads to lower levels of perceived cor-
ruption in a sample of 46 developed and developing countries.
The analysis explains the degree of de facto judicial independence (JI)
in terms of the degree of de jure JI (Feld and Voigt 2003), trust, legal
system, religious affiliations, and other variables. The degree of de facto
JI varies between 0 and 1; greater values indicate a higher degree. The
results show that de facto JI is robustly explained by de jure JI, which
means that de facto JI can at least be partially modified by institutional
choice. The degree of de facto JI is further determined by the amount
of confidence that the citizens of a country have in their legal system as
well as by their religious affiliations. The elasticity estimate for de jure
JI is the highest compared to other variables, which confirms that the
most effective way of increasing de facto JI is through the creation of
formal laws.

3 Expected Impacts of Justice on Corruption:


Sentencing
Since corruption is either an infringement of existing rules and/or
harmful to society, punishment would seem to be the fair response.
However, punishment might be ineffective or unfair. This may be the
case for different reasons, such as the number of persons involved, their
relative power and incentives, the cost of law enforcement, and the issue
of setting the “right” level of punishment (Engel et al. 2013). The num-
ber of persons involved in a corrupt activity starts at two but can attain
very high levels. A basic transaction may involve only one briber and
one recipient. Sometimes the transaction involves an intermediary. In
other cases, the transaction involves multiple officials, which further
increases the number of participants. The relative power of the various
participants is not always the same. For instance, corruption might be
coercive, and the briber may be unable to avoid it.
These features of corrupt activities raise the initial question of whom
to punish: the briber, the recipient, or both? In other words, is paying a
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221

bribe worse than accepting a bribe or vice versa? In most jurisdictions,


both are generally criminal offenses and incur parallel punishments.
However, it would be fair to distinguish situations where the briber
has no other choice than to bribe (extortion) and situations where he/
she chooses and even initiates the process. There are therefore grounds
for treating the two situations asymmetrically. This is the case in some
countries, such as Taiwan, where paying off an official is only a crime
when the payment is made to obtain an illegal service. In all other cases,
the payer is not subject to criminal sanctions. Under Romanian law,
making a payoff is not a crime if the briber has been obliged in any way
by the recipient. Moreover, a briber in this position can claim restitu-
tion of such payments. In other countries, the reverse is true. In Chile
in the 1990s, payment of a bribe was a criminal offense, but accept-
ing a bribe was not unless accompanied by other misconduct. Under
American law, the maximum penalties are symmetric for those who
make and those who accept corrupt payments. The offender can receive
a maximum sentence of three times the monetary equivalent of the
bribe, be imprisoned or both. He/she can be disqualified from holding
any office of honor, trust, or profit (Engel et al. 2013).
The debate about the symmetry of punishment gained further inten-
sity after the suggestion by Basu (2011) concerning harassment bribes,
i.e., payments that people have to make in order to get what they are
legally entitled to. The author suggested that in all such cases the act of
giving a bribe should be treated as a legitimate activity. In other words,
the bribe-giver should have full immunity from any punitive action by
the state. He argued that this would cause a sharp decline in the inci-
dence of bribery. The reasoning is the following. Once the law is altered
in this manner, the interests of the briber and the recipient will diverge.
The briber will be willing to cooperate in getting the recipient caught.
Knowing that this will happen, the recipient will be deterred from
taking a bribe. Drèze (2011) criticizes the suggestion that legalizing
bribe-giving will cause a sharp decline in the incidence of bribery. To
show why the idea does not work, he points out that a briber has three
options: do not bribe, bribe and report to the authorities, and bribe but
do not report. The “legalization” proposal enhances the attractiveness of
the second option vis-à-vis the first. However, it also makes the third
222    
K. Sekkat

option more attractive if reporting to the authorities incurs even a small


cost. Besides litigation costs, there is the possibility of harassment by the
recipient’s colleagues, especially if the chance of getting justice is small.
In this situation, the second option is no longer an option because of
these costs. The real choice is between not paying a bribe and paying a
bribe without reporting. The bribe will be paid anyway, and no sharp
decline in the incidence of bribery will be observed.
The above proposal is consistent with some practices around the
world. For instance, in the USA, two similar procedures are used. The
False Claims Act rewards those in the private sector who report irregu-
larities in government contracts and protects them from reprisals (Rose-
Ackerman 2010). Informers are also paid a share of the total penalties.
The Whistleblower Protection Act protects informers inside govern-
ment agencies from reprisal but does not give them a financial reward.
Such systems of carrots and sticks, however, depend on the existence
of a credible system of investigation and law enforcement that might
punish the corrupt deal on its own. The use of undercover operations
can be leveraged into a tool that encourages those offered or pressured
for bribes to come forward. If they do not, they know that the corrupt
offer may be a trap set by law enforcement authorities (Rose-Ackerman
2010).
A further complication in the discussion about punishment for cor-
ruption comes from the fact the process may involve other players such
as intermediaries, colleagues, and even heads of department (Hasker
and Okten 2008). Intermediaries helping individuals and firms are
common in developing countries and their use is a familiar feature of
many corrupt systems. A person with “connections” can smooth the
route through the bureaucracy against payments. Such payments are
used both to bribe public officials and to compensate the agent. The
intermediary is often either a former or off-duty official. With knowl-
edge of the practices and the “rates” for each service, the intermediary
can save time by eliminating the need for annoying extra visits to gov-
ernment offices. In complex systems, intermediaries can make things
simpler and speed up the bureaucratic process.
For a given procedure, individuals using intermediaries are bet-
ter off than if intermediaries did not exist. Intermediaries grease the
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223

wheels. However, the more effective this corrupt system turns out to
be, the greater the incentive becomes for officials and middlemen to
work together to perpetuate its existence and maximize its return. These
objectives can be achieved by increasing the time and trouble imposed
on citizens which, in turn, offers more opportunities for corruption.
Intermediaries can thus improve access to the bureaucracy, but also
strengthen incentives to create red tape (Rose-Ackerman 2010). As a
result, various surveys of businessmen suggest that intermediaries (or
middlemen hired by corporations and individuals) are a major cause
of persistent and high corruption in the developing world (Hasker and
Okten 2008). For example, Fjeldstad (2003, p. 172) explains how this
phenomenon emerged as an unintended consequence of a Tanzanian
government reform and anti-corruption campaign, which led to the fir-
ing of one-third of bureaucrats in the tax administration. Private busi-
nesses hired these fired bureaucrats to benefit from their knowledge and
insider contacts. New corrupt networks soon emerged. Ironically, the
solution introduced to tackle corruption caused the emergence of new
corrupt networks.
In addition to the problem of intermediaries, the fight is often com-
plicated by the systemic nature of corruption. Within a corrupt admin-
istration, it is almost impossible for a single official to remain honest.
The official must not only renounce the gain from corruption but
may also face hostility from colleagues because he/she diverts citizens
to his/her desk or is suspected of reporting misbehavior. Furthermore,
the delivery of, say, a license may need the approval of different civil
servants. While one of them might speed up the process, others might
slow it down unless they receive bribes. Such a situation often creates a
system of bribe-sharing that is generally organized by those at the top
of the hierarchy. Of course, those at the top have an incentive to put
pressure on those further down the chain to become part of the corrupt
system.
Even if the question of whom to punish is settled, the level and type
of punishment still have to be determined (Rose-Ackerman 2010).
Fines seem much less resource-intensive for the government than
putting people in prison, and their level could be calibrated to pro-
duce equivalent deterrent effects for defendants. Clearly, overly low
224    
K. Sekkat

levels of fines will have no deterrent effect on the briber or the recipi-
ent. However, an overly high level might not deter bribery, especially in
developing countries, where officials are not well paid and fines exceed
their family’s total wealth. Setting fines at an overly high level, by raising
the costs to extortionists, can only result in demands for higher bribes.
This will lower the incidence of corruption but increase the average level
of bribes paid. One way to reinforce the deterrent effect of penalties is
to increase the risk of being apprehended. However, this poses other
problems as explained below.
Apprehension and law enforcement incur specific costs for the jus-
tice system. Besides the costs common to the functioning of any admin-
istration, the functioning of justice involves additional costs related to
gathering evidence, negotiating leniency, and rewarding informers.
Deterrence of wrong-doing cannot be effective unless enforcement
authorities are able to obtain relevant evidence to be used in potential
negotiation or when determining the kind and level of punishment.
Obtaining relevant evidence is challenging since, in general, only the
parties to a corrupt activity know how the deal functions. The infor-
mation an investigator can access depends on the probability that one
or more of the participants has an incentive to report. Those who can
provide such information might, however, be reluctant to do so, fear-
ing future reprisal by the other member in the deal. To counteract such
fears, the authorities must offer protection, which might be very costly.
In sum, law enforcement may require substantial resources, which are
lacking in many countries, especially developing ones (Rose-Ackerman
2010).

4 Actual Impacts of Justice on Corruption:


Sentencing
Engel et al. (2013) use a corruption game to see whether symmetric or
asymmetric punishment is the most effective in deterring corruption.
Asymmetry is defined in terms of the level of the fines imposed on the
recipient and the briber. For this study, experiments were conducted in
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225

Germany and China. Choosing two different locations is a robustness


check which aims at showing whether the results reflect a generalizable
effect or differences in national cultures or in the legal environment. In
Germany, the experiments were run at the University of Bonn and in
China at Shanghai Jiao Tong University.
The summary of the game is as follows. An individual has to decide
whether to bribe or not in order to get a favor from an official. If the
decision is not to bribe, the game ends. If the decision is to bribe, an
official is approached with the offer. The official can reject the offer,
accept it and provide the favor, or accept the money without providing
the favor. If the official rejects the offer, the game ends. If the official
accepts the offer, money is transferred by the individual. The official has
now two possibilities: grant the favor or not. Granting the favor implies
the risk of being detected by the authorities. Granting no favor might
encourage the briber to report to the authorities. The asymmetry comes
here from whether in the event that the corrupt deal is discovered (by
the briber being reported or detected by the authorities) the briber is
fined less than the recipient. In this game, the briber is never fined more
than the recipient.
The results of the experiments show that under both symmetric and
asymmetric punishments corruption takes place. However, fewer deals
are implemented under symmetric punishments. These results hold
for the experiments in both China and Germany, which suggests that
the effect does not depend on a specific social, political, economic, or
legal culture. If bribers are punished more leniently (asymmetric pun-
ishment), there is more corruption. Under such asymmetric punish-
ment, bribers are less hesitant to approach a public official and offer a
side payment in exchange for a favor. If the official breaks the deal, the
briber can at a relatively small cost impose severe harm on the official.
The experiment shows that bribers do indeed use this threat and that it
is correctly anticipated by most officials who therefore provide the favor.
We conducted a conceptual discussion above about the proposal by
Basu (2011) to consider the act of bribing to avoid harassment as a
legitimate activity. The proposal differs from the paper by Engel et al.
(2013) discussed above in that the official always initiates the corrupt
transaction and that, more importantly, punishment is asymmetric in
226    
K. Sekkat

the sense that the briber risks no punishment. Abbink et al. (2014)
examine the effectiveness of such asymmetric liability in combatting
harassment bribes. The paper is based on the results of an experimental
study in India involving 360 undergraduate and graduate students. The
experiment went as follows.
Participants are randomly assigned the roles of a citizen or an offi-
cial. The citizen meets the official and the game starts. The official can
decide to ask the citizen for a bribe or can decide not to ask for a bribe.
An official who decides to ask for a bribe has to choose the amount.
The citizen then has three options: refuse to pay the bribe, pay the
bribe, or pay and report the corrupt act. Reporting the bribe makes it
much more likely that the official will be caught and fined. If the citizen
reports the bribe, but the authorities do not found sufficient evidence to
fine the official, the citizen may incur a penalty.
The experiment showed that compared with symmetric liability,
granting the briber legal immunity increases the reporting of bribe
demands and reduces demand for bribes. The study also found that a
substantial minority of citizens refuse to pay the bribe despite the sig-
nificant monetary cost of doing so. Moreover, it appeared that strict
financial incentives do not necessarily drive reporting behavior. Non-
monetary factors can motivate reporting behavior as well.
An analysis of officials’ behavior suggests that Basu’s proposal has lim-
ited ability to curb corruption when officials are able to retaliate against
citizens who report bribe demands. The authors suggest that Basu’s pro-
posal should be implemented along with complementary measures such
as policies to rotate officials in different posts to mitigate the effective-
ness of retaliation against citizens who report bribe demands. Moreover,
to further protect citizens’ vulnerability, informers may need to be given
protection, such as anonymity.
Wu and Abbink (2013) investigate the effect of asymmetric reporting
using a game scheme similar to Engel et al. (2013) but focus on rewards
for self-reporting. In this game, there are three reporting scenarios:
both the individual and the official may self-report, only the individ-
ual may self-report, and only the official may self-report. Accordingly,
the asymmetry comes here from which party is permitted to self-report,
instead of from the relative size of penalties applied to parties like in the
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227

majority of other studies. All experimental sessions were conducted at


Xiamen University in China with undergraduate students. In all, 230
subjects participated in the experiment.
The idea of offering rewards is an interesting one. In reality, there
are instances where the relation between the briber and the recipient
is characterized by repeated interactions and others where it is not.
Repeated interactions are likely to create trust between the parties.
The trust that is established implies little or no perceived risk of being
caught. Offering a reward for self-reporting might undermine such trust
and pave the road toward less corruption. Offering rewards to combat
misconduct is not an entirely new idea. For instance, Singapore rewards
officials who refuse bribes and expose their briber. Programs such as the
1993 DoJ Corporate Leniency Policy in the USA and the 1996 EU
Leniency Program are designed to combat cartel formation.
The experiment showed that none of the asymmetric regimes out-
performs the symmetric regime in terms of deterring corruption. When
agents anticipate future interactions, symmetric reporting and “Only
Official Reports” are only slightly effective in reducing bribery, but they
are more effective than “Only Individual Reports”. When agents expect
they will not be interacting with their partner in the future, all reward
mechanisms are extremely effective in reducing the incidence of brib-
ery. These results support the implementation of a reward mechanism
to deter bribery, especially petty corruption, where a given citizen is
unlikely to meet the same official in the future. The implications are less
clear for grand corruption (e.g., a multi-million-dollar bribe to secure a
very large government contract) or instances where the individual inter-
acts with the same official on a repeated basis.

5 Conclusion
Justice, which is central to the functioning of all societies, is also sus-
ceptible to corruption at three levels: access to justice, functioning of
the judicial system, and punishment of corrupt acts. Access to justice
involves important costs which many persons and countries cannot
afford. For the judicial system to function well, staff, including judges,
228    
K. Sekkat

prosecutors, and clerks, must be independent, accountable, fairly paid,


and not overwhelmed. Finally, punishment can be symmetric or asym-
metric, punishing both the briber and the recipient, or only one of
them.
Investigations show that a high number of administrative and adju-
dication tasks allocated to court staff as well as a high number of pro-
cedural steps can increase corruption. Long procedural times also cause
increased corruption. In accordance with these findings, greater pros-
ecutorial resources and their connection to the intensity of the work
result in higher rates of convictions, especially for corruption. Greater
prosecutorial independence in fact (rather than just in law) coupled
with judicial accountability lead to lower levels of corruption. Strict
requirements for legal justification are associated with less judicial cor-
ruption. More extended publication requirements are not associated
with corruption. Surprisingly, wage increases have no consistent effect
on corruption, but countries have seen a decrease in judicial salaries in
real terms show higher corruption.
Regarding punishment, laboratory experiments show that asymmet-
ric punishment by means of which bribers are punished more leniently
leads to more corruption. In fact, granting bribers legal immunity leads
to increased offers of corruption. It also increases reporting of bribe
demands and reduces demand for bribes. The implementation of reward
mechanisms to deter bribery, especially petty corruption, is effective
where a given citizen is unlikely to meet the same official in the future.
The implications are less clear for grand corruption and when individu-
als interact frequently with the same official.

References
Abbink, K., Dasgupta, U., Gangadharan, L., & Jain, T. (2014). Letting the
Briber Go Free: An Experiment on Mitigating Harassment Bribes. Journal
of Public Economics, 111, 17–28.
Alt, J. E., & Lassen, D. D. (2014). Enforcement and Public Corruption:
Evidence from the American States. Journal of Law Economics and
Organization, 30(2), 306–338.
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Banks, A. (2004). Banks’ Cross-National Time-Series Data Archive. Binghamton,


NY: Databanks International.
Basu, K. (2011). Why, for a Class of Bribes, the Act of Giving a Bribe Should Be
Treated as Legal (Ministry of Finance Working Paper).
Botero, J. C., La Porta, R., López-De-Silanes, F., Shleifer, A., & Volokh, A.
(2003). Judicial Reform. World Bank Research Observer, 18(1), 61–88.
Buscaglia, E. (2001). An Analysis of Judicial Corruption and Its Causes: An
Objective Governing-Based Approach. International Review of Law and
Economics, 21(2), 233–249.
Drèze, J. (2011, April 23). The Bribing Game. Indian Express. http://econdse.
org/wp-content/uploads/2012/09/JD-The-Bribing-Game-2011.pdf.
Accessed 9 May 2018.
Engel, C., Goerg, S., & Yu, G. (2013). Symmetric vs. Asymmetric
Punishment Regimes for Bribery. Max Planck Institute for Research
on Collective Goods (No. 2012_01). https://www.econstor.eu/bit-
stream/10419/57476/1/685077438.pdf. Accessed 9 May 2018.
Feld, L. P., & Voigt, S. (2003). Economic Growth and Judicial Independence:
Cross Country Evidence Using a New Set of Indicators. European Journal of
Political Economy, 19(3), 497–527.
Fjeldstad, O. (2003). Fighting Fiscal Corruption: Lessons from the Tanzania
Revenue Authority. Public Administration and Development, 23(2),
165–175.
Goelzhauser, G. (2012). Accountability and Judicial Performance: Evidence
from Case Dispositions. Justice System Journal, 33(3), 249–261.
Gordon, S. C. (2009). Assessing Partisan Bias in Federal Public Corruption
Prosecutions. American Political Science Review, 103(4), 534–554.
Hasker, K., & Okten, C. (2008). Intermediaries and Corruption. Journal of
Economic Behavior and Organization, 67(1), 103–115.
Hayo, B., & Voigt, S. (2007). Explaining De Facto Judicial Independence.
International Review of Law and Economics, 27(3), 269–290.
Transparency International. (2007). Global Corruption Report.
Van Aaken, A., Feld, L. P., & Voigt, S. (2010). Do Independent Prosecutors
Deter Political Corruption? An Empirical Evaluation Across Seventy-Eight
Countries. American Law and Economics Review, 12(1), 204–244.
Voigt, S. (2008). The Economic Effects of Judicial Accountability: Cross-
Country Evidence. European Journal of Law and Economics, 25(2), 95–123.
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Voigt, S., & Gutmann, J. (2015). On the Wrong Side of the Law—Causes
and Consequences of a Corrupt Judiciary. International Review of Law and
Economics, 43(C), 156–166.
Wu, K., & Abbink, K. (2013). Reward Self-Reporting to Deter Corruption:
An Experiment on Mitigating Collusive Bribery (No. 42–13). Monash
University, Department of Economics.
Rose-Ackerman, S. (2010). The Law and Economics of Bribery and Extortion.
Annual Review of Law and Social Science, 6, 217–238.
10
Specialized Anti-corruption Agencies

Many countries have created agencies specialized in the fight against cor-
ruption both as an alternative to recourse to the judicial system and because
the complexity of the corruption phenomenon is escalating. The fight
against corruption requires specific skills in a variety of fields, including law,
finance, economics, accounting, civil engineering, and social sciences. The
main functions of such agencies are law enforcement, prevention, policy
development, and coordination. A comparative review of different agen-
cies around the world reveals that their effectiveness in curbing corruption
differs highly across countries. The most successful examples are those of
Singapore and Hong Kong. Such a review also shows that when the agen-
cies do not deliver “success”, failure is not entirely attributable to them. A
major source of failures is the relationship with governments and donors in
terms of funding, independence, accountability, and transparency.

1 Expected Impacts of ACAs on Corruption


Given how hard it is for the traditional judicial system to curb corrup-
tion by itself, as shown above, most countries have established Anti-
Corruption Agencies (ACAs). Operating under different names, such as
© The Author(s) 2018 231
K. Sekkat, Is Corruption Curable?, https://doi.org/10.1007/978-3-319-98518-3_10
232    
K. Sekkat

corruption prevention bureaus, autonomous anti-corruption commis-


sions, and investigation commissions, ACAs are separate, permanent spe-
cialized agencies established by governments for the specific purpose of
combating corruption in their countries (Charron 2008; Quah 2009).
One of their most important benefits is to send a powerful signal to cit-
izens in the country that the government is committed to fighting cor-
ruption. A visible, credible, and independent ACA is crucial to success
in the fight against corruption. This means that the government should
demonstrate its commitment by granting the ACA sufficient legal powers
so that it can investigate anyone regardless of status or position. Moreover,
the government should provide adequate human and financial resources,
so the ACA can fulfill its role.
A comparative overview of different types of ACA reveals that
their main functions are law enforcement, prevention, policy devel-
opment, and coordination. The overview also makes it possible to
distinguish two broad ACA models: the single-agency model (Hong
Kong, Singapore, Argentina, Malaysia, and Tanzania) and the multi-
ple-agency model (Britain, France, India, and Mexico). The first model
has attracted most visibility and interest because it is, in general, mul-
ti-purpose and combines in one institution a multifaceted approach
comprising prevention, investigation, and education. These features
make it the closest to the model of an ACA. The multiple-agency
approach is less ambitious since it only creates one or more addi-
tional units or agencies with specific anti-corruption responsibilities
that either did not previously exist or were scattered among different
departments. This approach prevents the set-up of a strong “lead”
anti-corruption agency. As a consequence, it is seen as less threatening
to some private or public interest groups (Klemenčič and Stusek 2008;
Meagher 2005).
Three main factors contributed to the spread of ACAs. First, the
belief among many governments and international institutions that
just strengthening legislation was not sufficient to effectively control
corruption. Corruption had spread so widely that it even affected
important institutions in charge of fighting corruption, such as
the police or the judiciary, with the result that bribery offenses had
ceased to be investigated or prosecuted in many countries. Moreover,
10  Specialized Anti-corruption Agencies    
233

the multifaceted nature of corruption means that traditional public


institutions cannot control it. The fight against corruption requires
specific expertise, knowledge, and skills in a variety of fields, such
as law, finance, economics, accounting, civil engineering, and social
sciences. These skills, which are frequently dispersed across vari-
ous institutions, must be concentrated in a specific agency in order
to generate synergy between staff from different fields of knowledge
and make their action more effective (Klemenčič and Stusek 2008;
Charron 2008).
Second, by the mid-1990s, the problem of corruption had become
a major concern at the international level. A number of international
organizations, including the UN, the OECD, and the EU, started
designing and adopting instruments to fight corruption. Although these
international legal instruments varied in many respects, they all aimed
to promote specialization of law enforcement and prosecution bodies in
the field of anti-corruption (Klemenčič and Stusek 2008).
Third, the success they seemed to meet in fighting corruption in
Singapore and Hong Kong made ACAs the example to follow.1 In
Singapore, the Corrupt Practices Investigation Bureau (CPIB) was
established in 1952. In Hong Kong, the Independent Commission
Against Corruption (ICAC) was founded in 1974. Despite their
similar origins, design, and success, the ICAC and CPIB take differ-
ent approaches. The ICAC is very large, well-resourced, and strongly
oriented toward transparency and civic partnership, including out-
reach and education. The CPIB is much smaller and does not seek
to educate or mobilize the population in the fight against corrup-
tion. Like the ICAC, it has played a deterrent role by investigating
a number of “big fish”, such as ministers, MPs, and senior directors
in government agencies and companies (see Meagher [2005] for a
critical review).

1ACAs are frequently described as starting with the establishment of Singapore’s commission
in the 1930s. In fact, a similar model began operating in New York City in the 1870s.
234    
K. Sekkat

2 Actual Impacts of ACAs on Corruption


Although not dealing with ACAs per se, Olken (2007) shows the role
of public monitoring in fighting corruption. The paper is based on a
randomized field experiment in over 600 Indonesian villages. The
experiment concerns road construction projects which were part of a
nationwide village-level infrastructure project. The data in the paper
cover two of Indonesia’s most populous provinces, East Java, and
Central Java and were collected between September 2003 and August
2004.
Corruption in this context can take several forms which are, in gen-
eral, based on collusion between the implementation teams, the village
head, and suppliers to inflate costs. Accordingly, several mechanisms are
put in place to ensure proper use of project funds. A first mechanism
consists in village-level accountability meetings. Funds are released to
the implementation team in three tranches: 40, 40, and 20%. In order
to obtain the next tranche, the implementation team must present a
report in an open village meeting explaining how all funds were used.
Only after that meeting has approved, the report is the next tranche of
funds released. Similar approaches relating to participation in future
projects are imposed: A final cumulative accountability report must
be presented at the end of the project and must be approved by a vil-
lage meeting. A second mechanism consists of audits of selected pro-
jects by an independent government development audit agency. Each
village-level project in this study has about a four-percent baseline
chance of being audited. Auditors come to these selected villages and
cross-check all the financial records looking for irregularities. They also
inspect the physical infrastructure. The findings of the audit can poten-
tially lead to criminal action. Often, however, officials found to have
stolen funds are forced to publicly return the money. This leads to sub-
stantial social sanctions.
The evidence from the study suggests that increasing the probabil-
ity of audits substantially reduces funds stolen during the project. An
increase in the probability that a village will be audited from 4 to 100%
reduces missing money from 27.7 percentage points to 19.2 percentage
10  Specialized Anti-corruption Agencies    
235

points. Increasing mass participation (individual citizens) in monitoring


reduces missing expenditures only in specific cases, such as labor and
materials. Finally, distributing anonymous comment forms to citizens
reduces missing expenditures only if the distribution bypasses village
officials who may have been involved in the project. Accordingly, mass
participation in monitoring should be designed to prevent capture by
local elites.
Assessing the performance of Anti-Corruption Agencies is a chal-
lenging task. On the one hand, their missions are, in general, broadly
defined and hence difficult to assess. On the other hand, even if the
objectives are more concretely defined, the data on outputs and inter-
mediate outcomes are highly imperfect. Keeping such caveats in mind
Meagher (2005) tries to assess the accomplishments of ACAs in differ-
ent countries.2 The author examines how good ACAs are at what they
are supposed to do. Having collected information on some 30 ACAs,
Meagher identifies six functions as commonly performed by the agen-
cies. These are: receive and respond to complaints; intelligence, mon-
itoring, and investigation; prosecutions and administrative orders;
preventive research, analysis, and technical assistance; ethics policy guid-
ance, compliance review, and scrutiny of asset declarations; and pub-
lic information, education, and outreach. However, the available data
mean that only a portion of these functions can be examined. The data
come from ACA reports and different published papers. Moreover, the
years of observations may differ. The analysis is conducted on an annual
average basis.
Subject to caveats, the author draws the following conclusions: ACAs
in Hong Kong, Australia/New South Wales, Malaysia, and Singapore
have been significantly more successful than other agencies. They are
actually adding value in anti-corruption terms, and this contributes to
the strong governance ratings of those countries. These results do not
appear to be achieved through multi-agency cooperation in the absence
of an ACA. The analysis broadly indicates that the ACAs in these

2Argentina, Australia/New South Wales, Botswana, Ecuador, South Korea, Malaysia, the
Philippines, Tanzania, Thailand, and Uganda.
236    
K. Sekkat

countries have managed to cope with coordination, information, and


leadership constraints that a multiple-agency approach might not have
been able to overcome. It also appears that an ACA’s success depends
largely on cooperative relationships with other elements of government.
However, this is rarely the case, and such relationships sometimes break
down where they have been established. As a result, ACAs are regularly
frustrated by their inability to secure information, cooperation, prosecu-
tions, and so on.
In contrast to the previous paper, Quah (2009) focuses on the means
and credibility of seven Asian ACAs.3 Means are measured using per
capita expenditure and the staff to population ratio. This makes it
possible to assess whether the ACAs are provided with adequate per-
sonnel and budget to perform their functions. Credibility is based on
four indicators. These include whether the agency considers all com-
plaints, public perceptions of the ACA’s professionalism, enforcement of
anti-corruption laws, and the public image of the agency. However, only
the first indicator (consideration of all complaints) was analyzed for all
the ACAs under examination. The effects are considered using three
indicators: Transparency International’s 2008 CPI score, the World
Bank’s Control of Corruption Index (CCI), and Political and Economic
Risk Consultancy’s (PERC) survey on corruption. These indicators
reflect the effectiveness of the countries’ anti-corruption strategies which
are implemented by their respective ACAs.
In term of means, Macao’s agency is the best funded, with per capita
expenditure of US$21.72, ahead of Hong Kong’s, which has a per cap-
ita expenditure of US$12.14. Singapore’s agency has the third-highest
per capita expenditure (US$1.79). In terms of staff, Macao’s agency is
first once again with a staff-population ratio of 1 per 4358 inhabitants,
while Hong Kong’s has a staff-population ratio of 1 per 5863 inhabit-
ants, and Singapore’s agency comes third with a staff-population ratio
of 1 per 53,086 inhabitants. Thailand is fourth with a staff-population
ratio of 1 per 69,481 inhabitants, and the Philippines is ranked fifth
with a staff-population ratio of 1 per 85,057 inhabitants. India comes

3Singapore, Hong Kong, Macao, India, South Korea, Thailand, and the Philippines.
10  Specialized Anti-corruption Agencies    
237

sixth with a staff-population ratio of 1 per 229,505 inhabitants. The


South Korea has the worst staff-population ratio, at 1 per 233,171
inhabitants, indicating that its agency is understaffed.
Turning to credibility, the figures show that the proportion of com-
plaints investigated increased from 78.3% in 2001 to 91.5% in 2004
in Hong Kong. In Singapore, the proportion decreased from 68.9% in
1999 to 47.6% in 2002. However, Macao showed a disappointing score
with only 19% of complaints investigated during the period 2000–
2007. Regarding effectiveness, the ranking of the seven countries does
not change much across the measures. Singapore and Hong Kong are
ranked first and second, respectively, while the Philippines are always
last.
Doig et al. (2005) focus on the operating context and strategies of
ACAs in five Sub-Saharan African countries. As in the preceding stud-
ies, here too the data used should be treated with caution. Out of the
five countries, four (Uganda, Tanzania, Malawi, and Zambia) have a
single agency, and one (Ghana) has two agencies: A Commission for
Human Rights and an administrative justice body. The Commission
for Human Rights is larger than the administrative justice body, but
its main activities are not concerned with corruption. The ACA in
Tanzania is by far the largest: It is nine times the size of Malawi’s agency.
In Ghana and Uganda, the organizations are principally funded by their
respective governments. The others largely rely on donor support. The
dependency on funding by governments and donors suggests the ACAs
cannot fully control their own strategies, staffing, and activities. In most
cases, ACAs are dependent on other parts of government, usually the
Attorney General’s office, for permission to prosecute.
The analysis shows that, although investigation has long been seen as
the primary purpose of African ACAs, the reality is that only a relatively
small proportion of staff are involved in investigations. In Uganda, only
about 10% of staff are involved in investigation while in the most spe-
cialized investigation agency (the administrative justice body in Ghana),
the proportion is 50%. Moreover, all five countries have weak account-
ability, scrutiny, and monitoring arrangements. The anti-corruption
architecture is ad hoc, poorly planned, and inadequately executed.
Besides the issues of low staff skills (Tanzania) or the prevalence of a
238    
K. Sekkat

culture of impunity (Uganda), funding seems to pose the most impor-


tant problems. It often leads to donor intervention, donor-driven out-
puts, and uncertainty. One exception seems to be Ghana where the two
agencies are fully funded by government. Donors add support at the
margin but for activities that the agencies themselves have identified.
Uncertainty about the possible unilateral decision of a major donor to
stop funding the agency, as in Malawi in 2002, results in discontinuity
in the development and promulgation of anti-corruption programs.
The study concludes that, overall, the ACAs in question did not
deliver “success”, but that they were not entirely responsible for this
failure. A non-negligible part of the failure comes from the relationship
with governments and donors.

3 Conclusion
Because of the increasing complexity of the corruption phenomenon
and congestion of the judicial system, many countries have created
agencies specialized in the fight against corruption. The achievements of
these agencies in curbing corruption differ highly across countries and
depend on financial and human resources, independence from exter-
nal pressure, accountability, and the scope and purpose of their assign-
ments. The most successful examples are those of Singapore and Hong
Kong. Available assessments of the effectiveness of different anti-corrup-
tion strategies show that, overall, the experience is not always a success.
However, the failure is not entirely attributable to the agencies them-
selves, but comes mainly from the relationship with governments and
donors.

References
Charron, N. (2008, November 13–15). Mapping and Measuring the Impact
of Anti-Corruption Agencies: A New Dataset for 18 Countries. Paper
Presented at the New Public Management and the Quality of Government
Conference, Göteborg, Sweden.
10  Specialized Anti-corruption Agencies    
239

Doig, A., Watt, D., & Williams, R. (2005). Measuring ‘Success’ in Five African
Anti-Corruption Commissions-The Cases of Ghana, Malawi, Tanzania,
Uganda and Zambia. U4 Anti-Corruption Research Centre. https://www.
Shareweb.Ch/Site/DDLGN/Documents/U4Report-2005-1.Pdf. Accessed
12 Sept 2008.
Klemenčič, G., & Stusek, J. (2008). Specialised Anti-Corruption Institutions:
Review of Models. Paris: OECD.
Meagher, P. (2005). Anti-Corruption Agencies: Rhetoric Versus Reality.
Journal of Policy Reform, 8(1), 69–103.
Olken, B. A. (2007). Monitoring Corruption: Evidence from a Field
Experiment in Indonesia. Journal of Political Economy, 115(2), 200–249.
Quah, J. S. (2009). Benchmarking for Excellence: A Comparative Analysis
of Seven Asian Anti-Corruption Agencies. Asia Pacific Journal of Public
Administration, 31(2), 171–195.
11
Incentives and the Corruption Market

The analysis in the preceding chapters focused mainly on the “legal”


responses to corruption. However, such responses have their own limits
and might not be sufficient to achieve a significant reduction in cor-
ruption. Complementary approaches, generally associated with eco-
nomics, have been put forward as tools to fight corruption. They are
mainly based on changing the incentives and the “market structure” of
institutional supply. They include wage fairness, staff rotation, merito-
cratic recruitment, and privatization. The evidence confirms the impact
of wage increases on corruption reduction, but estimates suggest that
relying only on this instrument to eradicate corruption necessitates a
very high increase in wages. Moreover, wage increases should always be
coupled with real monitoring. Regarding market structure, it appears
that making the same service deliverable by different offices decreases
corruption. Experiments also show that staff rotation and meritocratic
recruitment can be effective in reducing corruption. Finally, privatiza-
tion also appears to be a useful tool in curbing corruption, but requires
autonomy and accountability.

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242    
K. Sekkat

1 Expected Impacts on Corruption


1.1 Incentives and Wages

One complementary approach in the fight against corruption is to


change the incentive schemes for civil servants. This consists, in general,
in running public administrations with well-paid officials.1 Economists
recommend a similar approach, which they call the “efficiency wage”
method (Bardhan 2006). The wage paid is above the market-clearing
level, which is supposed to enhance efficiency. In the context of corrup-
tion, higher wages imply higher costs for engaging in wrongdoing. A
bureaucrat is expected to be reluctant to put a well-paying job at risk
by taking part in corrupt acts. Conversely, underpaid bureaucrats have
a greater incentive to solicit bribes as they can easily find an equiv-
alent wage in the private sector. The generous public pension systems
frequently seen around the world also act as a deterrent to corruption
because pensions could be lost in the case of conviction for corrupt
behavior. However, if a bribe is high and the risk of being caught is low,
increasing officials’ wages might not help (Svensson 2005). Moreover,
higher wages strengthen an official’s bargaining power and can thus
lead to a higher bribe level if the official and the briber bargain over the
amount of the bribe. Another issue with increasing wages concerns the
size of the increase. Small changes are likely to have little effect on bribe
demand. A large increase in public wages may simply shift corruption
to the stage of selecting candidates for a civil servant position.

1.2 Public Service Delivery and the Bureaucrat’s


Monopoly

An alternative to changing wages is to change the “market structure”


of institutional supply (Bardhan 2006). Quite often corruption occurs

1In imperial China under the Ching dynasty, district magistrates were paid an extra allowance

called yang-lien yin, or “money to nourish honesty”.


11  Incentives and the Corruption Market    
243

because bureaucrats have a “monopoly power” over the requested ser-


vice. One solution is therefore to introduce more competition among
officials in the supply of public services. If a citizen who is eligible for a
given benefit can only obtain it from one office or one civil servant, he/
she has no choice other than to pay the bribe to get the desired service.
If multiple bureaucrats can deliver the service, the citizen has more bar-
gaining power because he/she can move to another bureaucrat to obtain
the service for a lower bribe or no bribe. However, this is conditional on
the absence of systemic corruption and collusion among bureaucrats.
Staff rotation is another solution, since corruption is based on trust
and reciprocity between the briber and the recipient (Abbink 2004).
Repeated interactions between the two parties create a very favorable
environment for bribery. With staff rotation, the potential briber has
no previous experience with the new public official and hence will have
difficulty in predicting the official’s reaction to the bribe offer. Similar
uncertainty holds for the new official vis-à-vis the citizen. However,
staff rotation can be costly. Long-term relationships between public
officials and citizens have the benefit of relieving officials of the need
to frequently adapt to new routines, cases, and rules (Abbink 2004).
Moreover, the mechanism will only work if the delivery of a given ser-
vice depends on one official only. If multiple officials must approve
delivery, the rotation of one official at a time might be ineffective. The
rotation of a high number of officials at the same time would be very
costly to the state (Svensson 2005).

1.3 Shifting Service Provision to the Private Sector

Instead of searching for an efficient incentive scheme targeting pub-


lic officials, another solution to fight corruption consists in shifting
service provision to the private sector. In practice, private firms have
taken over basic service provision in parts of India, tax collection in
Uganda, transportation in Mexico City, and parts of customs inspec-
tions in over 50 developing countries. However, shifting service provi-
sion to the private sector assumes that in this respect the private sector
is able to do better than the public authorities. The assumption is not
244    
K. Sekkat

necessarily well-founded because the functioning of the private sector


can be impacted by market failures. Such failures cover a wide range
of issues, such as information, incentives, and externalities. From the
information angle, transferring the supply of public services to private
firms can improve welfare only if the private sector can access and pro-
cess the information more effectively than the authorities. In terms of
incentives, the functioning of the private sector should prevent the risk
of corruption by private employees. Finally, the private sector must take
into account the effects of externalities better than the public sector
does. In order terms, the potential net benefit from shifting service pro-
vision to the private sector depends on the relative importance of “gov-
ernment” versus “market” failures. Moreover, even if privatization can
improve service delivery and reduce corruption, private actors in charge
of such delivery must also be monitored and audited and, in turn, pun-
ished for any misbehavior. Otherwise, firms once thought to solve the
corruption problem may ultimately promote corruption. Private actors
may ultimately become more corrupt and parasitic than the government
bureaucrats they replace. Honest and competent supervision of private
sector activity is necessary and should accompany the shift of public ser-
vices provision. If such control is not possible, it may be better to keep
the service inside the public sector.

2 Actual Impacts on Corruption


2.1 Incentives and Wages

The empirical analysis of incentives focuses on three variables: career,


salaries, and depoliticization (Dahlström et al. 2012). Career consider-
ations include meritocratic recruitment of bureaucracy through com-
petitive formal examinations, special laws for public employment and
career stability. This is supposed to create an “esprit de corps” which
promotes socialization of certain values, strong ties among the mem-
bers of the “corps” and isolation from external influences. Fair salaries
are designed to ensure that officials do not engage in corrupt behavior
11  Incentives and the Corruption Market    
245

to complement their salaries, while increasing the opportunity costs of


being convicted for corrupt activities. Finally, depoliticization leads to a
separation of interests. Politician and bureaucrats have separate interests
because they answer to different chains of accountability.
Rauch and Evans (2000) examine the effect of the components (com-
petitive salaries, internal promotion, career stability, and meritocratic
recruitment) of the three abovementioned variables on corruption. The
analysis is based on data on these components for 35 less developed
countries. The data were collected through a survey and concern the
responses to a questionnaire which gives an assessment of the compo-
nents over the period 1970–1990 as a whole. The collected information
is used to explain the degree of corruption as measured by the ICRG
index. Control variables include GDP per capita at the beginning of the
time period and the level of education. The results show that merito-
cratic recruitment is the element of bureaucratic structure that is most
important for decreasing corruption. Wages, internal promotion, and
career stability are at best of secondary importance.
Van Rijckeghem and Weder (2001) focus on the effect of civil service
salaries on corruption in a sample of 31 developing and low-income
OECD countries over the period 1982–1994. The dependent varia-
ble is the degree of corruption as provided by the ICRG. The explan-
atory variable of interest is the ratio of government to manufacturing
wages. Important control variables include the probability of detection
(measured by the quality of the bureaucracy and the rule of law from
the ICRG) and the Index of Political Rights and Civil Liberties drawn
from Freedom House. Other control variables are per capita GDP and
secondary school enrolment.
The findings point to a statistically and economically significant rela-
tionship between relative wages and corruption in the long run only.
However, the relationship implies that if one relies only on wages to
eradicate corruption, the wage increase must be very high.
Dahlström et al. (2012) consider simultaneously the three varia-
bles presented at the beginning of this section: career, salaries, and
depoliticization. To construct these variables, data were collected in
52 countries through a country-expert survey completed by 520 pub-
lic administration experts. The studied countries are of high or middle
246    
K. Sekkat

income.2 This contrasts with the Rauch and Evans (2000) sample,
which focused on developing countries. The dependent variable is the
World Bank’s corruption index for 2008. Control variables are GDP
per capita, level of education, degree of ethnolinguistic fractionalization,
political fragmentation, and the proportion of Protestants in the pop-
ulation. The results show that, in line with Rauch and Evans (2000),
meritocratic recruitment reduces corruption, even when controlling for
a large set of alternative explanations, while public employees’ compet-
itive salaries, career stability, and internal promotion do not have a sig-
nificant impact.
Le et al. (2013) use a similar approach to Dahlström et al. (2012) to
study the relationship between government wages and corruption, but
the dataset is larger, covering 113 countries over the period 1989–2010.
The ICRG corruption index is used as the dependent variable and is
explained in terms of the relative wages of government staff (computed
as in Van Rijckeghem and Weder 2001) and other control variables. In
particular, the income level in the country is introduced separately and
interacted with government staff wages. The reason for introducing the
interaction term is to examine whether the impact of government wages
on corruption is different between rich and poor countries. A large
number of other political, economic, and institutional factors are also
introduced.
The findings show that there is an impact of government wages on
corruption, but that this impact depends on the level of per capita
income. When income per capita is relatively low, higher government
wages reduce corruption. For instance, if the average government wage
relative to the average wage in the manufacturing industry increases
from 100% to 200%, corruption decreases by about one point (out
of a maximum of six) when the income level is between $1000 and
$2000 (in 2012 prices). However, this impact shrinks as the level of
income increases. In sum, higher government wages may not be an

2They include Western European, North American, and post-communist Eastern European

countries along with seven other countries: India, Brazil, South Africa, Japan, South Korea,
Mexico, and Turkey. The last four are members of the Organization for Economic Co-operation
and Development (OECD).
11  Incentives and the Corruption Market    
247

efficient policy tool to reduce corruption in upper-middle- or high-in-


come countries with a relatively high level of corruption, such as Greece
and Italy. In low-income countries, increasing wages may substantially
reduce corruption.
Foltz and Opoku-Agyemang (2015) took advantage of an ambitious
public sector reform in Ghana in 2010 to investigate the impact of a
wage increase on petty corruption. The reform consisted in doubling
police officer salaries and increasing the enforcement of anti-corruption
laws. The analysis is based on the results of surveys conducted between
2006 and 2012 and concerning long-haul trucks traveling back and
forth from Ouagadougou, the capital of Burkina Faso, to the port town
of Tema, Ghana. Seven types of stops are considered: customs, forestry,
gendarmerie, health, police, and unions. Each stop for an individual
driver represents a data point. The questions in the surveys concern: (i)
the time an official used to ask for a bribe, (ii) the amount of bribes
paid at each stop, (iii) the number of stops where no bribe is paid, and
(iv) the total amounts paid on a road. The responses to these questions
are used as dependent variables. The data also include information on
road, time, country characteristics, country of origin of the driver and
truck, truck type (tanker, container, and general purpose), truck value,
and the driver’s education level.
The analysis showed that policemen who received the salary increase
allocate more effort to collecting bribes in terms of the time spent
asking for bribes, the value of bribes they took and the total amount
that truckers had to pay on the road. It appears therefore that higher
civil service salaries encourage civil servants to demand higher bribes.
Moreover, the enforcement of anti-corruption laws, which is supposed
to go up with salary increases, remains lax. Accordingly, merely raising
salaries without changing the intensity of enforcement does not produce
a drop in corruption.
Duflo et al. (2012) use a randomized experiment to test whether
financial incentives together with monitoring can reduce teacher
absence and increase learning in Indian Non-Formal Education (NFEs)
centers. These centers are run by non-governmental organizations and
local government. The focus is on centers managed by one of India’s
leading development non-profit organizations, Seva Mandir, which runs
248    
K. Sekkat

about 150 NFEs in the tribal villages of Udaipur, Rajasthan. Udaipur is


a sparsely populated and hard-to-access region, which makes it difficult
to regularly monitor the NFEs. Accordingly, absenteeism is high.
In September 2003, Seva Mandir implemented an external monitor-
ing and incentive program on an experimental basis. The program cov-
ered 120 schools, of which 60 were randomly selected as the treatment
group and the remaining 60 as the comparison group. In the treatment
schools, each teacher received a camera. One of the students was tasked
with taking a photo of the teacher and the other students at the start
and at the end of each school day. The cameras had a tamper-proof
date and time function which made it possible to precisely track each
school’s openings and closings. Rolls were collected every two months
at regularly scheduled teacher meetings, and payments were distributed
every two months.
At the start of the program, participating teachers’ monthly base sal-
ary was $23 for at least 20 days of work per month. In the treatment
schools, teachers received a bonus of $1.15 for each additional day they
attended in excess of the 20 days. In contrast, they were fined $1.15
for each of the 20 days they skipped work. In the comparison schools,
teachers were paid a flat rate of $25 and were reminded that regular
attendance was required and that they could, in principle, be dismissed
for poor attendance.
The experiment resulted in average teacher absenteeism of 42% in
the comparison schools and 21% in the treatment schools. The stu-
dents in treatment schools benefited from about 30% more instruction
time. As a consequence, the program had a significant impact on test
scores: 0.17 standard deviations higher in treatment than in compari-
son schools after one year. Children were also much more likely to be
admitted to government schools.
A similar experiment was conducted by the government of Rajasthan
to combat nurse absenteeism. The program worked well in the early
months of its implementation, achieving about a 50% reduction in
absenteeism. After a few months, however, the government, while main-
taining the monitoring, started granting a large number of “exemp-
tions”. Absenteeism went up. It appears therefore that monitoring can
be effective but should be coupled with real incentives.
11  Incentives and the Corruption Market    
249

To further highlight the interplay between incentives and monitoring


in reducing corruption, Barr et al. (2009) use an economic experiment
focusing on the provision of public services by agents. The experi-
ment consists of a game involving three categories of players: com-
munity members, a public service provider, and a monitor. The game
is implemented in several rounds. The basic principles of the game are
the following. Each round, the community members, a public service
provider, and a monitor are assigned their roles randomly. The service
provider and the monitor receive a predetermined salary at the end
of each game. The public service provider receives some items to dis-
tribute to community members. He or she can decide to cheat (keep
some items) or not. The monitor puts effort into discovering whether
the service provider is cheating. If the monitor discovers that the pro-
vider has cheated, the latter receives his or her salary and is excluded
from being the service provider in the next rounds; i.e., he or she loses
future income. If the provider is not convicted of cheating, he or she
receives the predetermined salary and can be selected randomly for the
next round.
The whole game is repeated under different rules in order to test cer-
tain hypotheses. First, instead of being randomly selected, the moni-
tor is elected by the community in each round. The objective is to see
whether community members re-elect monitors who put more effort
into discovering cheats. Second, the degree of difficulty of discovering
a cheating provider is changed. This makes it possible to assess how the
ease of detection by monitors affects the probability of cheating by the
service provider. Finally, two levels (high and low) of the service provid-
er’s wage are considered. This makes it possible to test whether service
providers receiving a higher wage perform better.
The results show that when the monitor is randomly selected, moni-
tors put no effort into detecting cheating service providers, who keep all
the valuable tiles. However, when monitors are elected, service providers
perform better and elected monitors put greater effort into monitoring.
Moreover, service providers perform better when observability is higher
and community members re-elect monitors who put more effort into
exposing expropriation. However, the findings provide only weak evi-
dence that public servants who receive a higher wage expropriate less.
250    
K. Sekkat

Increasing the wage by 200% leads to a less than 30% reduction in


resource expropriation. Finally, monitors put more effort into exposing
underperformance by public servants who receive a higher wage.
Azfar and Nelson (2007) extend the game proposed by Barr et al.
(2009) to cases where both the officials and the monitor are elected. In
this way, the analysis highlights another important aspect of the fight
against corruption, that is, election of the executive. The difference
between the players in the game proposed by Barr et al. (2009) and
those in the paper in question is as follows. Community members are
now voters, the service provider is the executive, and the monitor is
the attorney. The executive is determined by popular vote. Corruption
is defined as the number of valuable goods that an executive steals.
Accountability is influenced by the costs and probabilities of being
caught. The probability of being caught is, in turn, dependent on the
ease of detecting corruption (transparency) and on the incentives faced
by the law enforcement officer (separation of powers). Like in Barr et al.
(2009), three changes are used to test the effects of accountability on
corruption. First, the difficulty of hiding corruption is low, moderate,
or high. Second, the wages of the executive and the attorney general are
either high or low. Finally, the attorney general is either appointed by
the executive or selected in a separate simultaneous election.
The analysis shows that voters rarely re-elect chief executives found
to be corrupt and that they reward presidents who had good luck by
re-electing them. Directly elected law enforcement officers work more
vigilantly at exposing corruption than those that are appointed. In par-
ticular, it appears that elected attorneys general collude less often with
the executive. Increasing both government wages and the ease of detect-
ing corruption reduces corruption. In this paper, the ease of detecting
corruption is related to increasing transparency, which can be achieved
through different means. These include improving accounting and audit
systems, checking on bank accounts, regular declaration of assets of
public sector employees, using reports from the media and public, and
providing incentives for officials to report bribes.
While the above studies are based on laboratory experiments, Di
Tella and Schargrodsky (2003) present evidence based on a natural
experiment. They take advantage of a crackdown on corruption that
11  Incentives and the Corruption Market    
251

occurred in the city of Buenos Aires, Argentina, in 1996–1997. After


a change of government, the new authorities implemented a policy of
monitoring input prices paid by hospitals. Each hospital has one pro-
curement officer.
From October 1996 to December 1997 (the monitoring period),
the government circulated a list showing the input prices paid by each
hospital. The list highlighted the hospitals that paid the lowest and the
highest prices for each product. The authors distinguished three peri-
ods: the first three months prior to the introduction of the monitoring
policy, the first nine months after the introduction of the policy, and
the last seven months of the observation period. During the first period
auditing was low, during the second period auditing was at its maxi-
mum level, while during the third period auditing intensity declined
relative to the second period.
Using regression techniques, the authors examine the effect of pro-
curement officer wages on the prices paid by the hospitals at different
audit levels. The dependent variable is the price of the input bought
by a given hospital during a given period. The explanatory vari-
ables include the wage of the procurement officer of the same hospi-
tal in the period, dummies pertaining to the strength of auditing and
other control variables. The estimation results show no clear effect of
wages on input prices. In contrast, monitoring has a clearer effect.
Prices decreased by 14.6% in Period 2 relative to their original levels,
but recovered by 5 percentage points in Period 3. Taken on their own,
prices during Period 3 were still 9.7% lower than in the first. The results
also show that the immediate effect of monitoring (Period 2) is stronger
than its longer-term effect (Period 3). It appears that audit intensity is
more effective than wages in deterring corruption.
Borcan et al. (2014) present the results of another natural exper-
iment based on an unexpected 25% wage cut applied in 2010 to all
Romanian public sector employees, including public education staff.
The analysis focused on a corruptible risk exam taking place shortly
after the announcement of the wage cut. Since private schools were
not affected by the policy, the corruption measure is based on a com-
parison of the changes in exam outcomes from 2009 to 2010 between
public and private schools. The reasoning is the following. Before 2010,
252    
K. Sekkat

exam outcomes are assumed to be inflated, for both public and pri-
vate schools. Additionally, it is assumed that the incentives and level
of corruption intensity for private schools should stay constant. The
substantial wage loss for public school staff might prompt teachers to
compensate for their forgone income by increasing the prevalence
of corruption. The estimates show that the wage cut caused a dispro-
portionate increase in average grades and passing rates in public high
schools relative to private ones.

2.2 Public Service Delivery and the Bureaucrat’s


Monopoly

As explained previously, another solution to curbing corruption may


be to break the monopoly enjoyed by bureaucrats. Different countries
have taken this approach. For instance, the German federal government
has adopted staff rotation for sensitive areas such as public procure-
ment, a field where corruption is common (Abbink 2004). In Nepal,
where traders were offered the possibility of using several points to pass
through customs, they flocked to entry points where bribe levels were
lowest. In the USA, a citizen can get a passport from almost any post
office. In India, however, people can only go to one passport office,
where officials have “monopoly power”, which they can exert to extract
bribes. In another case, drug-related corruption in the New York Police
Department was curbed by the involvement of officers from different
agencies with overlapping jurisdictions (Bardhan 2006).
Besides these examples, there are specific studies of the effect on cor-
ruption of competition among officials. Ryvkin and Serra (2015) use a
laboratory experiment to examine the effectiveness of such competition
among officials in the provision of the same good or service. Their focus
was on extortion corruption; i.e., bribe demands for the provision of
services that clients are entitled to receive. The experiment involved cit-
izens applying for a license from one of many available offices. Officials
decide whether or not to demand a bribe and the amount of the bribe
simultaneously at the beginning of the period. In the first instance,
citizens engage in a search whereby they visit an office at no cost and
11  Incentives and the Corruption Market    
253

discover whether the official requires a bribe and the size of the bribe.
Citizens then choose whether to pay the requested bribe or visit a dif-
ferent office by paying a fixed search cost. Citizens can get the license
from any of the previously visited offices at no additional search cost. By
changing the number of available offices and the size of the search cost,
the authors seek to isolate the impact of increased competition among
officials on both bribe demands and bribe payments.
The analysis suggests that increasing the number of offices in charge
of providing the same license may decrease extortion corruption
depending on the size of search costs. If search costs are high, increasing
the number of offices has no effect on bribe demands. A reduction in
search costs while keeping the number of offices fixed unambiguously
lowers bribes. Search costs can be reduced by improving infrastruc-
tures, such as roads or public transportation, or by promoting informa-
tion-sharing about the size of bribes demanded by different officials.
Sequeira and Djankov (2010) use a natural experiment to exam-
ine the effectiveness of competition among officials as an anti-corrup-
tion policy. The focus is on corruption in ports in Southern Africa.
Specifically, two competing transport corridors connect South Africa‘s
mining, agricultural, and industrial hubs to the ports of Durban in
South Africa and Maputo in Mozambique. Some South African firms
face the choice of using one of the two ports, especially since 2004
when the barriers for freight transit between South Africa and the port
of Maputo were significantly reduced. However, freight travels long
distances (around 588 km) between centers of production or con-
sumption and ports. The choice of which port to use is therefore not
trivial. The two countries are similar in many respects, including the
level of red tape and the number of documents to process the clearing
of goods through their ports. The two ports are also similar in terms of
overland transport costs, cargo-handling technologies, and logistics ser-
vices for standard cargo. They differ, however, in the levels of expected
corruption.
The port bureaucracies of Maputo and Durban differ in three impor-
tant ways. First, in Durban all clearance documentation is processed
online. This sets the level of direct interaction between clearing agents
and customs agents at a minimum. In contrast, this level of interaction
254    
K. Sekkat

is high in Maputo because all clearance documentation must be submit-


ted in-person by the clearing agent. As a result, the number of opportu-
nities for corrupt behavior is expected to be higher in Maputo. Second,
while in Maputo port operators are privately managed, in Durban this
is only the case for bulk cargo terminals. Container terminals are still
under public control. Private management in Maputo and in the bulk
terminals in Durban are expected to lead to less corruption, while pub-
licly managed container terminals in Durban are expected to generate
high bribes. Third, the two ports have different policies for customs offi-
cial management. Customs in Maputo have a policy of rotating agents
across different ports and terminals. Customs officials in Durban are
subject to little or almost no rotation.
The authors collected three datasets: (1) measures of transport costs
on both the Maputo and Durban corridors, (2) measures of the level
and frequency of bribe payments at each port, and (3) firm route
choices and other financial information. The empirical analysis is based
on a binomial probability model for the choice between the two cor-
ridors by each firm. The explanatory variables are firm location, the
level of urgency of the shipments and the characteristics of the cargo
that make it more or less vulnerable to paying a bribe in Maputo or in
Durban.
The findings show that if a South African firm ships goods that are
subject to a high tariff classification in Mozambique, the probability
of choosing Maputo declines by approximately 22–23%. Even when
accounting for distance, the perishability and the urgency of the ship-
ment as well as the expected bribe are a strong predictor of the choice of
port. As an example, 46% of South African firms located in regions in
which overland costs to the port of Maputo are 57% lower still go the
long way round to Durban to avoid higher bribe payments. Of these,
75% are shipping perishable cargo, and 74% are shipping urgent cargo.
A firm located in the town of Nelspruit, the capital of a province in
northeastern South Africa, is 171 km from Maputo and 992 km from
Durban. If this firm ships a high tariff good, it is 22% more likely to
ship through Durban than through Maputo in spite of the 210%
increase in overall costs. Firms that re-route to the least corrupt port
incur an additional 8% increase in yearly transport costs in comparison
11  Incentives and the Corruption Market    
255

with firms shipping cargos less vulnerable to corruption. Interestingly,


the diversion costs of corruption for each individual firm are eight times
higher than the actual bribes collected by customs officials in Maputo.
This suggests a very high aversion among firms to paying bribes.
Abbink (2004) examines the impact of staff rotation on corruption
using a laboratory experiment. The experiment involved 18 persons
split into two categories: a potential briber (typically a firm) and a pub-
lic official. At the beginning of the experiment, the category of each
participant is randomly drawn and remains unchanged throughout the
experiment. The experiment consists of 30 rounds. In each round, pairs
of players are matched randomly. Thus, the players do not know with
whom they will play in a particular round. This rule is a way to capture
the impact of staff rotation as compared with a game where the pairs are
kept the same for all 30 rounds.
Each round goes as follows. The firm decides whether and how much
to transfer to the public official. If it decides not to transfer, both play-
ers go directly to the service delivery stage. If it does transfer, the pub-
lic official accepts or rejects the bribe. If the public official rejects the
bribe, both players go directly to the service delivery stage. If the pub-
lic official accepts the bribe, the amount offered is deducted from the
firm’s account. The amount is then multiplied by a factor of three before
being credited to the official’s account. The multiplier reflects a differ-
ence in marginal utility: The same amount of money can be expected
to mean much less to a large firm than to a public official with a small
income. However, a lottery is played out to determine whether the play-
ers are considered to be caught or not. If not caught, the players go to
the service delivery stage. If caught, both players are disqualified from
the experiment and receive no money. This represents the consequences
arising from discovery of corrupt activities, namely drastic fines and job
loss.
At the service delivery stage, the public official has two choices: i)
option X (the “honest” option), which is, apart from eventual bribes,
slightly preferable (as manipulating a decision requires effort to jus-
tify the choice before superiors) or ii) option Y (the “manipulating”
option), which is much more favorable to the briber and entails a bribe
that more than compensates for the effort required to manipulate the
256    
K. Sekkat

decision. Moreover, option Y harms the public because, in this case,


each of the other participants in the experiment suffers a deduction in
his or her gains.
The experiment shows that rotation is effective in reducing corrup-
tion. On average, bribes are reduced by almost one-half and, more
importantly, the average frequency of inefficient decisions caused by
bribery decreases even more strongly. The effect observed in the exper-
iment is due to a lower tendency of firms to pay bribes as well as to a
lower propensity of public officials to be influenced by them in favor of
the briber. Moreover, the fact that bribers cannot reciprocate favorable
decisions by paying bribes in later cases results in a significantly lower
tendency to pay higher bribes after firms experience an advantageous
decision.

2.3 Shifting Service Provision to the Private Sector

Frequently cited examples of shifting public service provision to the


private sector concern Autonomous Revenue Authorities (ARAs) and
Pre-Shipment Inspection (PSI). The system is expected to have two
main benefits: reduce corrupt practices and enhance tax collection.
There are various opportunities for corruption in tax collection:
undervaluation or under-declaration of goods, intervention by poli-
ticians to exempt supporters from taxes, or use of the tax administra-
tion to harass political opponents through audits (Martini 2014).
ARAs were inspired by a radical program of public sector reform in the
1980s implemented by the UK, the USA, Australia, and New Zealand.
Countries in Africa and Latin America followed with the establish-
ment of semi-autonomous revenue authorities.3 The ARAs replaced the
old model of tax collection, which was dispersed among a number of
departments, did not work in a coordinated fashion and offered several

3Examples of countries that adopted ARAs are Malaysia, Singapore, Kenya, Malawi, Rwanda,

South Africa, Tanzania, Uganda, Zambia, Bolivia, Guatemala, Guyana, and Mexico (Taliercio
2004).
11  Incentives and the Corruption Market    
257

opportunities for rent-seeking and corruption. As a result, the amount


of collected taxes was very low.
The new systems aim to provide autonomy from political interference
and efficiency in tax collection. ARAs are supposed to have independent
management boards, although they are not as autonomous as a central
bank, and an operational budget independent from the regular annual
budgeting process. In order to attract more qualified and motivated staff
and reduce incentives for corruption, ARAs enjoy more flexibility in
hiring, paying, and managing staff. The results so far have been mixed.
Studies from a number of countries in Latin America and Africa show
that the reforms appeared to be successful in the initial years. However,
in many cases, the successes were not sustained (see Fjeldstad and
Moore (2009) for a deeper analysis).
Pre-Shipment Inspection (PSI) programs have similar objectives to
the ARAs but concern customs. First introduced in Zaire in 1963, PSI
has been adopted by many countries worldwide (Anson et al. 2006). In
total, over 50 developing countries have implemented PSI programs, at
least for a given period of time (Rose-Ackerman 2006). Interestingly,
countries with lower per capita GDP and more bureaucratic corruption
are those which are likely to adopt PSI (Yang 2008). PSI is conducted
by one or more firms hired by the government to inspect incoming
shipments. Such inspections are typically initiated and supervised by the
country’s finance ministry. In general, inspecting firms do not collect
the import duties, which remains the responsibility of customs officials
in the shipment’s destination country.
Import procedures under PSI vary greatly, but the typical approach
is roughly the following (Anson et al. 2006). The trader operating in
the port of shipment must first provide the local PSI company with a
detailed description of the shipment, which is then inspected. Upon
inspection, the PSI company issues a Report of Findings. The latter falls
into two categories: A Clean Report of Finding (CRF), when the PSI
company confirms the trader’s declaration, or a Discrepancy Report
(DR), when it raises the trader’s declared value. The CRF or the DR
serves as the basis for determination of the applicable import-tax regime
(tariff line, special regimes, exemptions, etc.) and is sent to the desti-
nation port’s customs. On the basis of these documents (CRF/DR and
258    
K. Sekkat

customs documents), the PSI company calculates all taxes and duties,
which are paid by the importer to a bank and transferred to the cus-
toms’ account at the Central Bank and then finally to the Treasury. For
these duties, the PSI company adds a fee paid by the importer, typically
about 1% with a minimum amount. Customs also sometimes perform
independent inspections in addition to PSI. Practices vary widely across
countries, with “second-inspection” rates ranging from 5% for some
countries to 100% for others, such as Nigeria.
As explained above, the privatization process is aimed at providing
autonomy from political interference and improving efficiency in tax
collection. However, the private bodies in charge of delivering pub-
lic services should have autonomy in practice and not only on paper.
Autonomy is the factor that enables politicians to make the commit-
ment that the tax administration will be more effective, fair, and com-
petent. The taxpayer needs to see that tax collection is effective, fair, and
transparent. To this end, the ARA’s budget should be, as far as possible,
a function of revenues collected, tax administrators should be trained
professionals operating in a meritocratic organization, and the ARA
superintendent should be free from political interference to pursue his
mission.
Taliercio (2004) focuses on the autonomy of the revenue authority
in Latin America. The analysis is based on a survey of 200 randomly
selected large corporate taxpayers and professional tax consultants car-
ried out over an 11-month period in 1998–1999 in Bolivia, Mexico,
Peru, and Venezuela. The responses served to construct indexes of ARA
organizational autonomy, performance, and political commitment to
reform. The indexes are then analyzed econometrically. The dependent
variable is taxpayers’ perception of a credible commitment by the state.
The independent variables include an indicator of the general stability
and performance of government, tax policy complexity, insulation of
agency management from politics, professionalism of personnel, fund-
ing levels, incentives, and funding mechanism.
The results support the hypothesis that autonomy matters.
Autonomy has an independent effect on perceptions of the politi-
cal commitment to reform, even controlling for other variables, such
as specific service quality, the wider institutional context, and fixed
11  Incentives and the Corruption Market    
259

country effects. This indicates that autonomy is valuable in itself, and


not only as a means to deliver better services. Moreover, higher auton-
omy ratings seem to signal the government’s commitment to reform.
They also go with better organizational performance and better percep-
tions of administrative fairness. In other words, when taxpayers perceive
the management of the tax agency as independent of political influence,
they also perceive the tax administration as fairer.
Sarr (2016) assesses the performance of 20 developing countries’
ARAs in terms of tax collection over the period 1980–2010. Only
countries that had created such agencies before 2000 were included
in the sample. The outcome variable is government revenue exclud-
ing grants and is drawn from the World Bank World Development
Indicators. Revenue is receipts from taxes, social contributions, and
other revenues such as fines, fees, rent, and income from property or
sales. The determinants of revenue are per capita GDP, value added
of the agriculture sector, the natural resource share of GDP, the debt-
to-GDP ratio, the degree of international trade, the investment
rate, the money supply, foreign aid, the political regime, the ICRG
quality-of-government index, the percentage of rural population, the
existence of armed conflicts, the ethnic fractionalization rate, a proxy
for the level of education and health, legal origin, and the country’s
geographic localization.
The results show that the creation of revenue agencies does not
always produce the expected outcomes. Out of 20 countries analyzed,
only five (Argentina, Bolivia, Guyana, Malawi, and South Africa)
seem to sustainably outperform a traditional finance ministry in terms
of revenue collection. In five other countries (Colombia, Guatemala,
Rwanda, Uganda, and Zimbabwe), performances are mixed. Finally, in
six countries (Kenya, Mexico, Peru, Tanzania, Venezuela, and Zambia),
creating the agencies led to worse revenue collection. In this last set of
countries, government revenue would have been higher if it had been
kept under the finance ministry. Such contrasting outcomes suggest that
establishing a revenue authority should not be viewed as a panacea. The
difference in the performance of these revenue authorities suggests that
other factors, such as the quality of staff and the degree of independence
of the agency from the political authorities, might be crucial to success.
260    
K. Sekkat

Turning to PSI programs, Yang (2008) analyzes the relationship


between their implementation and import duty collections for the years
1980–2000. The author considers that this is an indirect way to assess
the effect on corruption because the impact of PSI on import duty col-
lections is due in large part to reductions in customs corruption. The
sample contains 1372 observations from 104 countries, 19 of which are
observed before and after the start of the PSI programs. The remaining
countries serve as controls. The main question in the paper concerns the
impact of PSI on collected import duties. This is the dependent variable
and is explained in terms of the existence and age of countries’ PSI pro-
grams, other tax revenues (excluding import duties) and average import
tariffs.
The findings are that PSIs lead to large increases in import duties:
15–30% during the five years after implementation. The programs seem
cost-effective: The improvements in import duty collections during the
first five years represent 2.6 times program costs. Such improvement is
the result of reduced falsification of import documentation, including
declines in undervaluation and misreporting of goods classifications.
Moreover, PSI programs seem to become more effective over time, since
old programs tend to have larger impacts than the most recent ones.
While the above paper suggests that PSI programs are, on average
across countries, cost-effective, micro studies suggest that the conclu-
sion may differ depending on the country. For instance, Anson et al.
(2006) focus on the impact of PSI on under-invoicing in three coun-
tries (Argentina, Indonesia, and the Philippines). The empirical analy-
sis is based on panels of imports to the three countries from the EU.
Since tariff evasion, like all forms of fraud, cannot be measured directly,
the empirical exercise is based on a comparison of the records of
source and destination customs. Importers attempting to evade tariffs
will under-declare the value of shipments at destination customs, not
at origin. Accordingly, discrepancies between source and destination
import values data will reflect, in addition to CIF/FOB differences and
measurement errors, the extent of deliberate under-declaration. Using
a proxy for CIF/FOB differences between source and destination, the
authors investigate the extent of under-declaration in pre- and post-PSI
years, respectively. The econometric results suggest that the introduction
11  Incentives and the Corruption Market    
261

of PSI services increased under-invoicing in Argentina and Indonesia


and reduced it in the Philippines. However, as mentioned by the
authors, the Philippines case is not necessarily a proof of success for PSI.
The econometric analysis cannot control for import deflection to duty-
free zones, which became a vehicle for tariff evasion in the Philippines
after the introduction of PSI.
Echoing this concern, Rose-Ackerman (2006) analyzes the microeco-
nomic impact of PSI on tariff evasion in the Philippines and Colombia.
In particular, the paper examines whether increased enforcement would
lead criminal activity to be displaced to alternative lawbreaking meth-
ods. The discussion suggests that to be successful, anti-corruption
reforms should be “broad” in the sense of encompassing a wide range
of possible alternative methods of committing the illegal activity of
interest. Otherwise, displacement to alternative methods can inhibit the
original goals of the reform.
Starting with the Philippines, the customs procedure was the follow-
ing. Before 1990, shipments valued under US$5000 were exempt from
PSI. A common method of avoiding the inspection was therefore to
split shipments into pieces so that each one could be valued below that
level. In the first half of 1990, the government reduced the value thresh-
old first to $2500 and then to $500. Note that another characteristic
pertaining to the Philippines is that only shipments from a subset of
countries were subject to PSI in the first place.
Focusing on imports with declared values between $2500 and $5000,
a comparison of imports from countries subject to PSI and from those
which are not shows a decline in the fraction of imports from countries
subject to PSI. Moreover, during the same period, shipments via export
processing zones from the countries subject to PSI increased. Imports
from countries subject to PSI seem to have been encouraged to take
advantage of the exemption for export processing zone shipments from
these countries. Increased enforcement reduced the original method of
duty avoidance (valuation under the old minimum value threshold), but
led to substantial displacement to an alternative duty-avoidance method
(shipping via duty-exempt export processing zones). Overall, estimates
suggest that the minimum value threshold reductions led to significant
262    
K. Sekkat

net tariff revenue losses (net of PSI fees) of around $36.8 million for the
Philippine government.
In Colombia, when the government implemented its PSI program,
it required PSI only for a defined subset of products (“PSI products”).
The fact that the Colombian PSI program required inspections for
only a subset of products enabled importers to evade import duties by
misclassifying imports in non-PSI product categories. To measure how
duty avoidance operated after PSI was introduced, a ratio compar-
ing Colombia’s reported imports of a given product to other countries’
reported exports of the same product to Colombia is constructed. The
results show substantial displacement of PSI products through misclassi-
fication to enable duty avoidance.

3 Conclusion
Because the “legal” responses to corruption discussed in previous chap-
ters have their own limits and might not be sufficient to significantly
reduce corruption, complementary approaches have been suggested.
These approaches propose changing the incentives and the “market
structure” for the supply of institutional services. They include wage
fairness, staff rotation, meritocratic recruitment, and privatization.
Assessments of the effectiveness of these proposals suggest that mer-
itocratic recruitment is the element of bureaucratic structure that is
most important for decreasing corruption. Wages, internal promotion,
and career stability are at best of secondary importance. Although the
relationship between wages and corruption is statistically significant, it
seems economically infeasible. For wages to eradicate corruption, their
increase needs to be very large. Breaking the monopoly enjoyed by
bureaucrats by increasing the number of offices in charge of providing
the same services decreases corruption. Staff rotation is very effective in
reducing corruption, making it possible to decrease the average amount
of corruption by almost one-half. More importantly, the average fre-
quency of inefficient decisions caused by bribery decreases by even
more. The shift of public service provision to the private sector appears
to be successful in the initial years of privatization. However, in many
11  Incentives and the Corruption Market    
263

cases, the success is not sustained. Crucial to success are independence


from the political authorities, monitoring, and staff quality.

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12
International Cooperation

This chapter examines the role of international initiatives and cooper-


ation in curbing corruption. The analysis is limited to the three most
important initiatives, which are the US Foreign Corrupt Practices Act,
the OECD Convention Against Corruption, and the United Nations
Convention Against Corruption. The chapter also examines the validity
of fears among the international business community that these initia-
tives put such businesses at a significant competitive disadvantage. The
empirical results do not lend strong support to these fears. In contrast,
the findings suggest that international programs against bribery abroad
can be effective in making investors more sensitive to host country cor-
ruption. However, recovering assets stolen by former leaders (Suharto,
Mobutu, Marcos, and others) seems much more difficult and calls for
better international legal cooperation and harmonization.

1 Instruments of International Cooperation


1.1 Foreign Corrupt Practices Act (FCPA)

The FCPA was passed by the US Congress in December 1977 and


has been amended twice. The 1988 amendment was a response to
© The Author(s) 2018 265
K. Sekkat, Is Corruption Curable?, https://doi.org/10.1007/978-3-319-98518-3_12
266    
K. Sekkat

complaints by US corporations, which found the original act too vague


and wide in scope. The FCPA was again amended in 1998 to extend
application to “any person” over which the US Department of Justice
(DoJ) has jurisdiction. The FCPA adopts a twin approach to counter
bribery: accounting and penalization. The accounting approach requires
all corporations that have stock registered with the Securities and
Exchange Commission (SEC) to keep accurate books and accounts of
all transactions and to adopt a system of internal accounting controls.
The penalization approach prohibits US corporations and their agents
from making payments to foreign officials in return for their influ-
ence to help the corporation. The SEC is responsible for enforcing the
accounting requirements, while the SEC and the DoJ share responsibil-
ity for enforcing the anti-bribery provisions. In August 2012, the SEC
adopted strict transparency rules regulating payments by oil and gas
companies and firms in extraction mining industries.
While the previous treatments of corruption focused on the demand
side (e.g., public officials who accept or require bribe payments), the
FCPA also adopted a supply-side approach (i.e., foreign corporations
offering to pay bribes). There are significant penalties for violating the
FCPA. A person found guilty of violating this act may be fined up to
$100,000 and/or receive a five-year prison sentence. A corporation
may be fined up to $2,000,000 for violating the anti-bribery provi-
sions of the FCPA. There are also provisions with serious commercial
consequences, such as suspension or denial of export licenses or loss
of the privilege of doing business with the government (La Roche and
Flanigan 2011).
Until 2004, the DoJ had two choices when a business organization
was the subject of an FCPA investigation. It could either charge the
entity with an FCPA violation or not. In 2004, the DoJ started using
two additional instruments as alternative resolution vehicles: Non-
Prosecution Agreements (NPAs) and Deferred Prosecution Agreements
(DPAs). NPAs permit non-prosecution in exchange for cooperation.
They concern cases where a corporation’s timely cooperation appears
necessary to the public interest and where other means of obtaining
the desired cooperation are unavailable or not effective. Under a DPA,
12  International Cooperation    
267

the DoJ agrees to defer prosecution of the alleged crime (usually for
an eighteen-month to three-year period). In exchange, the company
acknowledges responsibility for the alleged conduct and agrees to imple-
ment a set of compliance actions (Koehler 2015).
The use of alternative resolution vehicles to resolve FCPA inquiries
was motivated by the need to avoid crippling business organizations
of critical importance to the economy. In the 2000s, the DoJ therefore
moved from its historical binary option approach to resolving corpo-
rate criminal liability to a more flexible one. Although it was frequently
claimed that alternative resolution vehicles were not the norm in cor-
porate investigations, between 2006 and 2007 there were 12 corporate
criminal FCPA enforcement actions and 100% of the enforcement
actions involved either an NPA or DPA. Moreover, since the DoJ first
used the alternative resolution vehicles in December 2004, there have
been 84 criminal FCPA enforcement actions against business organiza-
tions, and 70 of these enforcement actions (approximately 85%) have
involved an alternative resolution vehicle. In contrast, available data
show that between 1977 and 2004 (the year when alternative resolution
mechanisms were first used), there were 24 FCPA enforcement actions
against business organizations and 20 of these enforcement actions
(83%) involved criminal prosecutions of company employees (Koehler
2015).
Since its inception, the FCPA has been criticized for placing US firms
at a competitive disadvantage based on the fact that few countries for-
bid bribery of foreign officials. To compound the problem, many coun-
tries permit tax deductions for corrupt payments made in connection
with foreign trade. In this context, US firms feared losing overseas busi-
ness opportunities, particularly in emerging markets where corruption is
rampant. In an effort to address this concern, the USA started putting
diplomatic pressure on its international partners to prohibit bribery of
foreign officials and politicians. As a consequence, several international
treaties were ratified that seek to criminalize bribery and eliminate the
tax deductibility of corrupt payments made to foreign public officials
(La Roche and Flanigan 2011).
268    
K. Sekkat

1.2 United Nations Convention Against Corruption


(UNCAC)

In 2003, the UN General Assembly adopted the first global response


to anti-corruption, the United Nations Convention Against Corruption
(UNCAC). The convention entered into force in 2005 with 140 sig-
natories. Each new member to the UN or a new regional integration
organization becomes de facto a party to the convention. This new affil-
iation enters into force on the 30th day after the date of deposit by such
state or organization of the relevant information. The main additions of
the UNCAC concern international monitoring, cooperation, prosecu-
tion, and criminalization and the fight against laundering. In particular,
the convention covers:

• Prevention: It includes preventive policies, such as the establishment


of anti-corruption bodies and enhanced transparency in the financing
of election campaigns and political parties.
• Criminalization: It requires countries to establish criminal and other
offenses to cover a wide range of acts of corruption.
• International cooperation: Countries agree to cooperate with one
another in every aspect of the fight against corruption, including pre-
vention, investigation, and prosecution.
• Asset recovery: Countries agree on asset recovery which is a particu-
larly important issue for many developing countries, where high-level
corruption has plundered the national wealth, hampering the recon-
struction and rehabilitation of societies.

1.3 Other Anti-Corruption Initiatives

Significant rules have been established by supranational organizations


including the Organization of American States (OAS), the Organization
for Economic Co-operation and Development (OECD), and the World
Bank (WB) in order to establish moral business conduct abroad. In
1997, the WB adopted a comprehensive strategy aimed at preventing
corruption associated with the projects that it finances. As part of its
12  International Cooperation    
269

anti-corruption strategy, the WB also decided to help countries around


the world in fighting corruption and to support international efforts
with a similar target. Meanwhile, in 1997, ministers of the OECD
countries along with five other countries (Argentina, Brazil, Bulgaria,
Chile, and Slovakia) signed the Convention on Combating Bribery of
Foreign Public Officials in International Business Transactions (known
as the OECD Convention). This convention came into effect in 1999,
and its provisions criminalize bribery and seek to eliminate tax deduc-
tions for corrupt payments made to foreign public officials (La Roche
and Flanigan 2011).
At the regional level, the OAS adopted in 1996 the Inter-American
Convention Against Corruption (IACAC), which was the first pan-re-
gional anti-corruption treaty. Unlike other conventions, the IACAC was
not modeled on the US FCPA. The IACAC signatory countries agreed
on specific preventative and remedial measures to eliminate corruption.
They also implemented mechanisms to monitor compliance with the
convention: Each country must report on its progress in implemen-
tation, evaluate adequacy and assess achievements. In 1995, the EU
started with modest anti-corruption instruments which mainly con-
cerned the misuse of EU funds. Gradually, the EU broadened its focus
and adopted a comprehensive two-year process for reviewing Member
States’ anti-corruption achievements. Last but not least, in 2003 the
African Union Convention on Preventing and Combating Corruption
(AU Convention) was adopted and entered into force around three
years later.

2 The Debate on the Costs and Benefits


of These Instruments
Many US commentators, politicians, and business leaders have argued
that the FCPA harms US companies. These businesses, they claim, are
put at a significant competitive disadvantage because they are in compe-
tition on overseas markets with foreign counterparts which are not sub-
ject to the FCPA and are thus free to pay bribes. Some evidence supports
270    
K. Sekkat

the claim that the FCPA has caused US companies operating abroad
to lose a substantial amount of business or export opportunities to for-
eign competitors. One early study by the US Department of Commerce
reported 21 embassies as saying that the FCPA was an export disincen-
tive in the countries in which they were located. In 1981, a General
Accounting Office study looked at 250 US firms and found that 30%
reported losses of foreign business as a result of the act. More recently,
a 1995 Central Intelligence Agency report estimated that over 1994–
1995, the USA lost $36 billion in international business to bribe-paying
international competitors. The most high-profile bribery-related pro-
ceedings concerned Siemens AG and three of its affiliates, which were
suspected of paying substantial bribes to officials in countries including
Argentina, Bangladesh, Iraq, and Venezuela. To settle the allegations, the
firms paid penalties totaling over $1.7 billion to the authorities in the
USA and Germany and to the World Bank (Davis 2009).
However, other arguments mitigate the above discussed negative
impact of international anti-corruption programs on business. First,
by forcing corporations to comply with anti-bribery laws, these pro-
grams may push businesses to improve their competitiveness through
more “healthy” methods. Thus, in order to win contracts without pay-
ing bribes, they might focus on the quality of their goods and services.
Such an increase in quality would also generate benefits on non-cor-
rupt markets. Second, international anti-corruption programs can help
companies by providing an excuse not to pay bribes. Some observ-
ers have suggested that the FCPA allows companies to save face while
refusing to pay bribes and thus insulates them from the costs of brib-
ery. For instance, Colgate-Palmolive cited the FCPA and its prohibi-
tion of bribery in response to demands for bribes from Chinese officials
regarding the construction of a factory. The factory ultimately opened
in 1992 without any bribes being paid. Finally, the provisions under
international anti-corruption programs have allowed a number of coun-
tries whose head of state stole national assets to recover some or all of
these assets, although this is not an easy task. For instance, Switzerland
returned approximately US$700 million misappropriated by Ferdinand
Marcos to the Philippines. However, other cases, such as those of
Mobutu and Jean-Claude Duvalier, show that asset-recovery proceedings
12  International Cooperation    
271

can be hampered by political influence and a poorly functioning judici-


ary in the country of origin (Transparency International 2007).

3 Actual Impacts of International


Cooperation
Empirical analyses of international anti-corruption programs focus
mainly on the FCPA and two if its consequences: (i) whether, by put-
ting firms at a disadvantage abroad, the programs have reduced inter-
national trade and investment and (ii) whether the programs have been
successful in reducing corruption. Regarding the first issue, Graham
(1984) investigates whether the FCPA resulted in a reduction in the
share of imports of foreign countries from the USA. The analysis is
based on the results of a report by the US Commerce Department in
1980 regarding export promotion and export disincentives. Responses
were received from 51 embassies, representing countries accounting for
80% of total US exports in 1979. Based on the responses, two classifi-
cations are applied to the 51 countries. The first classification takes the
form of a dichotomous variable separating countries where the FCPA
was not mentioned as an export disincentive from those where the
FCPA was mentioned as an export disincentive. The second classifica-
tion takes the form of an ordinal variable which evaluates the impact of
the FCPA on a four-point scale: major, significant, minor, or no impact.
The analysis examines the relationship between each of these two var-
iables and the changes in the share of imports from the USA between
1977–1978, 1978–1979, 1979–1980, 1977–1979, and 1977–1980.
The results lend no support to the “competitive disadvantage” hypoth-
esis. No statistically significant differences between US trade perfor-
mances in the various groups (embassy responses) are discovered.
Instead of US exports, Graham and Stroup (2016) focus on bilat-
eral fixed capital flows from January 1, 1990 to January 1, 2010. The
analysis is based on regression techniques where the dependent variable
is the number of acquisitions announced by US acquirers in year t of
firms headquartered in a foreign country j. The explanatory variable of
interest is a dummy which takes a value of unity in all years following
272    
K. Sekkat

the announcement of an FCPA enforcement action against the acqui-


sition announced by a US company of a firm headquartered in coun-
try j. Control variables include the distance between Washington, DC
and country j ’s capital, whether the countries share a common language,
share a physical border, are members of the World Trade Organization
and country j ’s GDP. The findings show that anti-bribery enforcement
in a country is followed by a 40% reduction in foreign fixed capital
investment by US companies in that country.
One reason behind the reduction in foreign investment in corrupt
countries is that FCPA enforcement increases the cost of doing busi-
ness for affected firms. This increase stems from accounting controls
and compliance programs imposed on firms. Even firms which are not
contemplating bribery may incur an increased cost of doing business
due to the cost of compliance. To examine this question, Lippitt (2013)
conducts an empirical analysis of the relationship between FCPA vio-
lations and the growth of US foreign investment flows. If the FCPA
has harmed US investment abroad, one would expect a negative corre-
lation between US foreign investment growth and FCPA enforcement.
Accordingly, the dependent variable is the growth rate of US foreign
direct investment flows from 2000 to 2011. The explanatory variable of
interest is the frequency of prosecuted FCPA violations during the same
period. Several control variables were used.
The results do not show a statistically significant correlation between
the growth of US foreign direct investment and the frequency of FCPA
violations in a given country. Thus, these results do not provide sup-
port for the hypothesis that US foreign direct investment was negatively
affected by the FCPA. This conclusion is not in line with Graham and
Stroup (2016). One reason for the divergence might lie in the measure
of foreign investment. Graham and Stroup (2016) use the number of
acquisitions announced by US acquirers while Lippitt (2013) considers
the amount in US$ of foreign investment.
In addition to the FCPA, Cuervo-Cazurra (2008) considers the
impact on bilateral fixed capital flows of the OECD Anti-Bribery
Convention. The study covered 103 economies between 1996 and
2002. Bilateral investment data are used to construct the dependent
variable and come from the United Nations Conference on Trade and
12  International Cooperation    
273

Development (UNCTAD). The main explanatory variables are the


Transparency International (TI) and the WB measures of corruption. A
large number of control variables are considered including GDP, popu-
lation, geographic characteristics, languages, and colonial histories.
To test the effectiveness of the FCPA, a distinction is made between
the USA as the country of origin of the investor and other countries of
origin. The logic behind the test is that if the FCPA has been effective,
the investment entering a given country from the USA should be lower
after 1977 (date of FCPA adoption) than investment from other coun-
tries. A similar idea is applied to investment originating from countries
which have signed the OECD Anti-Bribery Convention and which
have domestic laws against bribery abroad.
The results regarding the effectiveness of the OECD Anti-Bribery
Convention show that investors from countries that implemented the
convention become more sensitive to host country corruption and
reduce their investments in corrupt countries. Similar results hold for
the FCPA. US investors are more sensitive to host country corruption
than other investors. In sum, the results support the idea that interna-
tional programs against bribery abroad can be effective in making inves-
tors more sensitive to host country corruption
Using firm-level data, Trzcinski (2012) mitigates, however, the effec-
tiveness of the FCPA. The paper examines the reaction of companies
that have been subject to FCPA enforcement. The considered reactions
concern whether a firm withdraws from or stays in a country if it has
received a sanction because of an alleged FCPA violation. The dataset is
compiled from press releases announcing the resolution of given matters
and court records on complaints and litigation. It includes all compa-
nies that went through enforcement proceedings related to anti-corrup-
tion laws and conventions between 2000 and 2010. The sample is not
limited to US companies because the jurisdiction of the FCPA has been
expanded to include foreign companies that are US issuers1 and non-US
persons when the conduct takes place while in the territory of the USA.

1An issuer is a company that is listed on a national securities exchange in the USA (either stock or

American Depository Receipts) or the company’s stock trades in the over-the-counter market in
the USA, and the company is required to file SEC reports (Trzcinski 2012).
274    
K. Sekkat

The dependent variable measures the response and takes the value 1 if
the company continues operating in the country and 0 if it divests. The
explanatory variables include the host country’s GDP and natural resources
abundance as well as proxies for the probability of detection of corrupt
activities by FCPA regulators and the sanction related to being caught.
The results show that companies involved in FCPA enforcement
actions do not generally divest from the countries where they have been
sanctioned for alleged violations. In over 70% of cases, the company
continues to do business in the country in question. The findings also
reveal that companies headquartered in countries with the cleanest cor-
porate cultures continue to operate in implicated countries. However,
the marginal effects of home country culture exhibit diminishing incre-
mental value. Comparing a company from a country with a low bribery
index score of 7 (e.g., Mexico) to another from a country with a more
moderate level of 7.5 (e.g., Taiwan) shows a 15% increase in the prob-
ability of continuing operation in an implicated country. However, the
difference between a company from France (with an index score of 8)
and a company from Canada (with an index score of 8.5) results in an
increase in probability of only 4.5%.
In contrast to the above papers, Lippitt (2013) directly exam-
ines whether the FCPA has decreased corruption. The logic behind
the question is that the substantial fines imposed on firms convicted
of FCPA violations should discourage companies from entering cor-
rupt deals. This implies a negative correlation between FCPA enforce-
ment and corruption growth. The data used range from 63 to 84 US
partner countries. The growth rate of corruption from 2000 to 2011
is the dependent variable. The measure of corruption is derived from
TI’s annually published Corruption Perceptions Index (CPI). The
growth rate of corruption is explained in terms of FCPA violation fre-
quency during the same period. Over this period, there were a total
of 324 bribery suspicions prosecuted under the FCPA. Violation fre-
quency is assigned to the country where the bribe payment occurred.
Only actions against legal entities (not individuals) are included in
the analysis. Actions against a subsidiary are also included but sepa-
rately counted. Actions that were dismissed are omitted. Control var-
iables include the host country GDP, a measure of democracy at the
12  International Cooperation    
275

beginning of the period, and the host country corruption score at the
beginning of the period.
The results show a significant negative correlation between pros-
ecuted FCPA violations and corruption growth. This implies that the
FCPA might have helped to decrease the perception of corruption in
foreign countries. The results also suggest that GDP growth is nega-
tively correlated with corruption growth. Democracy is significantly and
negatively correlated with corruption growth, which suggests that dem-
ocratic countries tend to be less corrupt.
Like the previous paper, Samanta and Sanyal (2016) investigate
directly the impact of international programs on the propensity of firms
to give bribes. However, the focus here is on the OECD Convention
on Combating Bribery. The sample uses two groups of countries: those
which have signed the OECD Convention and those which have not.
TI’s Bribe Payers Index (BPI), which indicates the perceived propensity
of firms based in a particular country to give bribes to foreign govern-
ment officials, is used. The main analysis is based on non-parametric
tests such as the Kolmogorov-Smirnov test and the empirical distri-
bution of the two groups of countries. The tests compare the BPI dis-
tributions of the two groups of countries. The results of both types of
tests show that these two groups of countries differ significantly in their
BPI scores. The results support the hypothesis that firms from coun-
tries that are signatories of the OECD Convention are less likely to give
bribes than firms based in other countries. In other words, the OECD
Convention has had the intended effect of reducing bribe-giving by
firms from member countries when conducting international business

4 Conclusion
To be confident of retrieving money which they have obtained through
illegal acts, politicians, rulers, and high-ranking civil servants put this
money outside their country, while at the same time establishing highly
sophisticated systems to make it very hard to track down the embezzled
money. These systems often overlap with other illegal activities such as
the financing of terrorist acts, the covering up of narcotics trafficking,
276    
K. Sekkat

and the embezzlement of development aid. This situation means that


international cooperation is increasingly required. One of the first initi-
atives in this respect was the adoption in 1977 by the US Congress of
the Foreign Corrupt Practices Act (FCPA), which prohibits transna-
tional bribery. Since then, the international approach to corruption has
gained broader coverage and now involves various international institu-
tions. Many business leaders have, however, argued that the FCPA puts
US firms at a significant competitive disadvantage because of competi-
tion from foreign counterparts which are not subject to the FCPA and
thus free to pay bribes. Empirical analyses of international anti-corrup-
tion programs lend no strong support to the “competitive disadvantage”
hypothesis. No statistically significant decline in the performance of US
firms abroad is discovered. The association between the enforcement of
these international laws and corruption is also found to be significantly
negative. The FCPA and other programs seem to have helped to decrease
corruption in foreign countries.

References
Cuervo-Cazurra, A. (2008). The Effectiveness of Laws Against Bribery Abroad.
Journal of International Business Studies, 39(4), 634–651.
Davis, K. E. (2009). Does The Globalization of Anti-Corruption Law Help
Developing Countries? (New York University Law and Economics Working
Papers. Paper 203).
Graham, J. L. (1984). The Foreign Corrupt Practices Act: A New Perspective.
Journal of International Business Studies, 15(3), 107–121.
Graham, B., & Stroup, C. (2016). Does Anti-bribery Enforcement Deter
Foreign Investment? Applied Economics Letters, 23(1), 63–67.
Koehler, M. (2015). Measuring the Impact of Non-Prosecution and Deferred
Prosecution Agreements on Foreign Corrupt Practices Act Enforcement.
UC Davis L. Rev., 49, 497–741.
La Roche, C. R., & Flanigan, M. A. (2011). International Initiatives to
Eliminate Corruption: Has Bribery Declined? International Business and
Economics Research Journal, 3(9), 15–20.
Lippitt, A. H. (2013). An Empirical Analysis of the Foreign Corrupt Practices
Act. Virginia Law Review, 98, 1893–1930.
12  International Cooperation    
277

Samanta, S., & Sanyal, R. (2016). The Effect of the OECD Convention
in Reducing Bribery in International Business. Global Business and
Management Research, 8(1), 68.
Transparency International. (2007). Global Corruption Report 2007.
Trzcinski, L. M. (2012). The Impact of the Foreign Corrupt Practices Act on
Emerging Markets: Company Decision-Making in a Regulated World. New
York University Journal of International Law and Politics, 45, 1201–1285.
Part III
Anti-corruption Strategies:
The Role of Civil Society

So far, we have examined how different institutional or market changes


can help to reduce corruption. The analysis has brought us to the con-
clusion that whatever system is suggested to curb corruption, moni-
toring and control are necessary. For instance, while the move from an
autocratic regime to a democratic one removes one of the prime causes
of corruption, the extent of its effect depends on the democratic rules.
The establishment, monitoring, and application of these rules can sub-
stantially reduce, although not eliminate, grand corruption but might
be ineffective against petty corruption. The latter might persist even in
democratic countries and is often the most exasperating to ordinary cit-
izens. The most illustrative example is India, the biggest democracy in
the world and at the same time one of the most corrupt. Because even
an honest ruler cannot control the actions of each civil servant, addi-
tional monitoring mechanisms appear to be necessary.
For monitoring and control to be successful in curbing corruption,
a certain number of conditions need to be fulfilled. First, the moni-
tor (individual, firm, or other organization) should have high stand-
ards of ethical and civic values to ensure that it is trusted by citizens.
Otherwise, a “monitor to monitor the monitor” is needed. These
280    
Part III: Anti-corruption Strategies: The Role of Civil Society

qualities are, however, not easily observable and an alternative is to


choose a monitor whose own interest is served by achieving the objec-
tive of the mission. Citizens as a group meet this requirement best.
Second, effective monitoring entails the ability to access, process, and
efficiently use information, especially since a number of fields and
dimensions related to corruption are very complex. Such access and effi-
cient use depend heavily on the quality of the information system in
the country. Independent media play a crucial role in supplying reliable
information and promoting transparency and publicity. They can also
be very useful in exposing misbehavior. Third, monitors must have a
certain level of education not only to exploit the information but also to
strengthen their civic and ethical stance. Education participates in mak-
ing citizens aware of the harm caused by non-civic attitudes such as cor-
ruption. It can make people intolerant of such misbehavior even if they
are not directly affected.
These three conditions are interlinked and meeting one helps to
support the others to provide a potentially powerful anti-corruption
tool. For instance, empirical evidence shows that a strong civil society
has a substantial anti-corruption impact only in countries with high
press freedom. It has no significant impact on corruption in countries
with low press freedom (Themudo 2013). Other evidence suggests
that a strong civil society can be a powerful complement to the media
as a corruption deterrent. A strong civil society increases the pressure
for information disclosure and accountability and provides important
support to the media in their task of exposing corruption (Shim and
Eom 2009). Accordingly, countries concerned with the question of cor-
ruption should seek to improve the awareness of their citizens about
corruption issues. To this end, education is a very effective tool. It is
commonly associated with the acquisition of reading and writing skills,
which are prerequisites for citizens’ efficient use of the information pro-
vided by the media. In addition, education equips citizens with tools to
participate effectively in a representative democracy. In other words, a
strong civil society owes a lot to education. However, having well-ed-
ucated people is not enough if there are obstacles to communication
and exchange through media or ICT. To reap the civic and political
benefits of education, citizens must be allowed to access government
Part III: Anti-corruption Strategies: The Role of Civil Society  
   281

information and engage in social interaction, through which they can


communicate their opinions, suggest possible solutions, expose misbe-
havior, and promote ethical behavior.
In sum, citizens should be involved in the fight against corruption
because they are the main beneficiaries of such action in terms of both
money and social cohesion. To effectively accomplish their monitoring
tasks, citizens need access to information and the ability to hold those
who misbehave accountable. If the activities of the government are pub-
licized, citizens can hold high officials as well as civil servants accounta-
ble for misconduct (Rose-Ackerman and Truex 2012).

References
Rose-Ackerman, S., and Truex, R. (2012). Corruption and Policy Reform (Yale
Law and Economics Research Paper No. 444).
Shim, D. C., and Eom, T. H. (2009). Anticorruption Effects of Information
Communication and Technology (ICT) and Social Capital. International
Review of Administrative Sciences, 75(1), 99–116.
Themudo, N. S. (2013). Reassessing the Impact of Civil Society: Nonprofit
Sector, Press Freedom and Corruption. Governance, 26(1), 63–89.
13
Civil Society and the Media

The mass media can play a crucial role in supplying citizens with relia-
ble information, which promotes transparency and publicity. They can
also be very useful in exposing misbehavior. Various research has exten-
sively documented the efficacy of information and the media as weap-
ons against corruption. Studies inspired by the experience of radio have
shown that the emergence of this media strengthened the influence
of information by increasing the speed of transmission and reaching a
larger population. Similar phenomena have been documented for tel-
evision and the Internet. The latter provides, within the more general
framework of Information and Communication Technology (ICT), a
useful tool for faster and better communication, retrieval of data, and
utilization of information.
The expected positive impacts listed above are, however, not guar-
anteed, because the media themselves may be corrupt, while private or
government groups may exert pressure and make threats. The historical
record of corruption in the media suggests, however, that these prob-
lems do not persist for a long time. Empirical analyses confirm that the
media can help in reducing corruption, but not alone. In countries with
low levels of education, the media need to be accompanied by policies

© The Author(s) 2018 283


K. Sekkat, Is Corruption Curable?, https://doi.org/10.1007/978-3-319-98518-3_13
284    
K. Sekkat

aiming at strengthening the capacity of citizens to access, process, and


use information.

1 Expected Impacts of the Media


on Corruption
Effective monitoring by citizens requires access to information and
the ability to hold those who misbehave accountable. In other words,
increased transparency and bottom-up accountability are both needed.
If the activities of the government are publicized, citizens can hold high
officials as well as civil servants accountable if they notice wrongdoing.
Citizens can initiate complaints, engage in social exclusion, cast votes,
or conduct denunciation campaigns. However, the information pro-
viding the basis for citizens’ actions must be reliable. Rumors are not
enough to initiate and coordinate actions. The mass media are good
candidates for supplying such reliable information and hence for pro-
moting transparency and publicity (Court et al. 2003). The media must
be strong and independent from government and wealthy private inter-
ests to help fight corruption (Brunetti and Weder 2003). For instance,
Reinikka and Svensson (2004), focusing on leakage of an education
grant in Uganda, show that the detailed publication by the government
of education funding processes in local newspapers allowed citizens
and schoolmasters to better monitor the release and use of government
funds. In particular, communities with better access to newspapers
experienced lower leakage rates. Thus, launching newspaper campaigns
can substantially reduce corruption, leakage, and associated embez-
zlement. An experimental study in Brazil (Winters and Weitz-Shapiro
2014) showed that respondents who were informed of a corrupt act
expressed a desire to punish the guilty politician regardless of his/her
level of performance. de Figueirido et al. (2013) reveal that knowl-
edge of corruption can reduce the vote share by 2.6%. Again in Brazil,
Ferraz and Finan (2011) look at a federal government initiative to ran-
domly audit municipalities on the use of received funds. The results
of the audits were publicized in local newspapers and radio programs.
13  Civil Society and the Media    
285

The study showed that the release of audit results negatively affected the
electoral performance of corrupt incumbent mayors. Finally, Peisakhin
and Pinto (2010) found that India’s Right to Information Act (RTIA)
allowed citizens to access a public service more effectively without hav-
ing to resort to petty corruption.
The role of the media in fighting corruption has to be nuanced,
however (Ferraz and Finan 2011). Although greater information provi-
sion is good, the capacity of the public to digest information and act
accordingly should not be overestimated. Most citizens may be incapa-
ble of understanding the subtleties of the issue under consideration or
of devoting enough time and effort to make the best of the available
information. Moreover, transparency is only effective if citizens have
the ability to report infringements which are followed by punishment
(Adsera et al. 2003). Besides these problems, the provision of informa-
tion itself is not without risk. Private and government groups which are
reluctant to see their corrupt activities publicized might exert pressure
on information providers and threaten them with punishment. This
might discourage the provision of information unless informers are
credibly protected in one way or another. Moreover, such threats are
not always illegal and may be based on well-established judicial rules.
While the jailing of journalists is now rare in many developed societies,
it tends to persist in a number of developing ones. Another method
which is more frequent even in developed societies is to use defamation
laws, which can result in massive fines or damages, although means of
correcting or getting compensation for the potential harm exist. Such
fines can result in bankruptcy of the journalist or publishing company
for a single “error”. An alternative means of intimidation concerns pub-
lication licenses or restrictions, which can undermine the willingness to
investigate.
The external obstacles discussed above, all of which can impact the
effectiveness of the media in combating corruption, are not the only
factors at play. There are also internal factors which can have a simi-
lar influence. Of prime importance is the risk that journalists might be
corrupt themselves. Chapter 1 gives many examples of such corruption.
However, the historical record of corruption in some developed coun-
tries suggests that the problem might not persist for a long time. For
286    
K. Sekkat

instance, Bignon and Flandreau (2011) study the phenomenon of “bad-


mouthing”—or the threat of printing negative information for extor-
tion purposes—in the pre-1914 French capital market. At that time,
many journals were using badmouthing techniques to get payments
from issuers of bonds and other assets. Faced with this “credible” threat,
many issuers were tempted to pay to prevent damaging rumors from
circulating. Badmouthing is easy to do because journals do not need to
make explicit allegations. They need only indicate, suggest, or let it be
understood that something is wrong and let the rumor spread. To con-
trol the damage from badmouthing, corporations, banks, and govern-
ments can organize themselves to form a counterweight to make better
information available to the public. Moreover, since the noise generated
by badmouthing is potentially harmful not only to investors but also to
borrowers, both groups seek press coverage from more prestigious and
reliable sources of information. The “good” press enjoys a windfall while
the other perishes. Gentzkow et al. (2006) draw on the remarkable evo-
lution in the media and corruption in USA between 1870 and 1920
to document a similar pattern. Today, the USA is commonly consid-
ered to be among the least corrupt nations in the world. In the past,
however, America encountered many political scandals and widespread
corruption comparable to the situation in the most corrupt nations
nowadays (Glaeser and Goldin 2004). In 1870, the US press was parti-
san and insincere. By 1920, most newspapers had become less partisan
and more prone to reporting the facts without bias. The reason for this
shift seems to lie with the increasing financial returns earned from sell-
ing newspapers rather than from efforts to satisfy politicians in search of
patronage and other privileges.

2 Actual Impacts of the Media on Corruption


The previous section argued that, to be successful, efforts by citizens to
curb corruption need effective and powerful media. Themudo (2013)
examines the extent to which the impact of civil society depends on
the press being free and generating sufficient public pressure on the
administration. The study uses two samples of data on civil society
13  Civil Society and the Media    
287

and corruption: a cross-national sample of 40 countries with data on


non-profit sector size and a longitudinal sample of 118 countries with
data on civil liberties. The dependent variable, corruption, is measured
using TI’s Corruption Perceptions Index (CPI). It is explained in terms
of the strength of civil society, freedom of the press, and an interaction
term between the two. The interaction term is used to test whether the
impact of the strength of civil society on corruption depends on the
degree of press freedom.
The strength of civil society was measured using three different indi-
cators: the share of non-profit sector employment (paid and full-time
equivalent volunteer labor) in total employment, Freedom House’s
Civil Liberties Indicator and the same indicator but recalculated to
exclude the freedom of expression score. Press freedom is measured
using Freedom House’s Freedom of the Press Index. Control variables
include income per capita, the degree of state intervention in the econ-
omy, openness to trade, political institutions (the level of democracy,
federalism, independence of the judiciary), and historical and cultural
variables.
The analysis showed that, irrespective of its measure, a strong civil
society is associated with lower levels of corruption across countries and
over time. However, such effect is strong only in countries with high
press freedom. There is no significant impact on corruption in countries
with low press freedom. These findings suggest that the impact of civil
society on corruption is significantly dependent on its ability to gener-
ate public pressure through a free press.
Two channels through which press freedom and civil society can
effectively counter corruption are transparency (disclosing information
about government and other institutions) and publicity (making the
information known to citizens). Lindstedt and Naurin (2006) sought
to test the validity of this expectation in reality. Using a sample of
111 countries over the period 2001–2004, they study the relationship
between corruption, transparency, and publicity. Corruption measures
are drawn from three institutions, namely the World Bank (WB), TI,
and the International Country Risk Guide (ICRG). These measures are
explained in terms of political transparency (from the WB), freedom
of the press (from Freedom House and Reporters Without Borders),
288    
K. Sekkat

newspaper circulation, and the number of radio receivers per capita


(both from the WB). Other control variables such as democracy, edu-
cation, economic development (measured by GDP per capita), and
British colonial heritage are also used.
The results confirm that transparency can reduce corruption but not
by itself. Making information available does not prevent corruption if
the conditions for publicity are weak. Furthermore, such publicity must
be independent from the government. Freedom of information and
other transparency laws implemented by the government are less effec-
tive against corruption than a free press. The results also point to the
importance of education in fighting corruption. In countries with low
levels of education and media reach, transparency needs to be accom-
panied by policies aiming at strengthening the capacity of citizens to
access and process information.
Brunettia and Weder (2003) bring additional insights to the impor-
tance of the media. Using average corruption scores between 1994 and
1998 in 128 countries, they examine the importance of a free press as
a means of controlling corruption. The measures of corruption come
from the ICRG, the WB, and TI. The measure of press freedom is
drawn from Freedom House. Control variables are the quality of the
bureaucracy, respect for the law by citizens (taken from the ICRG), the
level of per capita GDP, educational attainment, and the degree of eth-
nolinguistic diversity (all from the WB).
The results show a strong association between the level of press free-
dom and the level of corruption across countries, suggesting that an
independent press may represent an important weapon against cor-
ruption. This result is robust to different checks. To give a flavor of
the economic significance of the impacts, the authors compute the
improvement in corruption that countries can expect from more press
freedom. They show that an improvement of one standard deviation
in press freedom could reduce the corruption score by between 0.4
and 0.9 points (on a scale of 0–6). Similarly, they consider how much
an improvement in press freedom to the level of Norway (the country
with the freest press) would affect the corruption index for countries
with particularly repressive practices. They find that such improvement
in Indonesia would bring corruption down to the level of Singapore.
13  Civil Society and the Media    
289

For the Russian Federation, it would bring the corruption level down to
that of the Slovak Republic, while corruption in Nigeria would fall to
the level of Belgium.
While the above studies focus on institutional aspects affecting the
role of the media, i.e., press freedom, Adsera (2003) examines a more
practical dimension. The paper uses media circulation for a cross-section
of between 155 and 173 countries over the period 1997–1998. A simi-
lar analysis is conducted for US states.
Starting with the cross-country analysis, the dependent variable is the
WB corruption index. It is explained in terms of the circulation of daily
newspapers per person in 1995, which also comes from the WB. The
level of democracy in 1994 (taken from the Polity III database), the per-
centages of the population of the country that belong to the three most
widespread religions (Catholicism, Islam, and Protestantism), ethnic
fractionalization, and per capita real income (both from the WB) are
introduced as control variables. An interactive term between the level
of democracy and the circulation of newspapers is also incorporated
into the regression to gauge the extent to which the impact of newspa-
per readership on political accountability depends on political freedom.
Massive levels of readership without political liberties, like in the for-
mer Soviet Union, clearly did not make the politburo accountable to
the public.
The results show that political control of public officials depends on
two key factors. The first is the existence of free and regular elections,
which allow citizens to discipline politicians. The second, and equally
important, is the degree of freedom of information, which enables cit-
izens to curb the opportunities for politicians to engage in corruption
and mismanagement. The presence of a well-informed electorate in a
democratic setting explains between one-half and two-thirds of the var-
iance in levels of governmental performance and corruption. This result
is robust to numerous robustness checks.
The authors conduct a similar analysis for the USA. The meas-
ure of political corruption here is different, however. For each state, it
is the number of public officials who have been convicted for violat-
ing laws against public corruption. To eliminate random variations in
yearly data, the total number of convictions for two separate periods,
290    
K. Sekkat

1977–1987 and 1986–1995, is used. The data come from the US


Department of Justice. Here, the presence of a well-informed electorate
accounts for the impressive cleanliness of American states in the Plains
as well as for the much higher level of federal prosecutions of public
officials in the South of the USA.
Costa (2012) focuses on the impact of Freedom of Information
(FOI) laws on corruption. The first FOI-type law was enacted by
Sweden in 1766. Finland was the next to adopt, in 1951, but a wave
of adoptions was launched following the USA’s enactment of a similar
law in 1966. As of September 2013, at least 95 countries had nation-
wide laws establishing the right of, and procedures to facilitate, access to
records held by government bodies. While governments may have had
different reasons for adopting such laws, anti-corruption concerns rank
among the most important (Banisar 2006).
This paper explores whether corruption perceptions are reduced fol-
lowing adoption of an FOI law. It uses a panel of up to 128 countries
from 1984 to 2007. Among these countries, 40 enacted FOI legislation
during the period, and 12 already had an FOI law during the period
for which data were available. The dependent variables are the ICRG
and TI corruption perception indexes. The main explanatory variables
are a dummy which equals 1 starting on the year an FOI law entered
into force in a country and the degree of press freedom from Freedom
House. Control variables are the Polity 2 Democracy Index and GDP
per capita.
The results indicate that perceptions of corruption rise following the
adoption of FOI laws. More importantly, this increase in perceived cor-
ruption takes place in the first five years after adoption. In addition,
perceptions of corruption rise in countries with a free press.
The cross-country studies presented above are usefully comple-
mented by those focusing on one country. Cross-country studies
reveal regularities, or averages, in the relationship under examination,
while single-country studies uncover specific country characteristics
that affect the “average” relationship. Focusing on India, Transparency
International (2008) highlights the importance of access to informa-
tion. In 2005, the government of India issued the Right to Information
Act (RTI Act), which established the right of citizens to access
13  Civil Society and the Media    
291

information and the practical procedures for doing so. It also insti-
tuted a Central Information Commission and State Information
Commissions. The objective was to promote transparency and account-
ability in the working of public authorities. The RTI Act has been
used several times by citizen groups to request information from the
authorities. For instance, in Keolari, a small village in the central state
of Madhya Pradesh, a local elected politician was building a home in
December 2006 when he erected a wall around a well that his father
had donated to the community nine years earlier. This well was one of
only two sources of potable water available to the village’s 2500 resi-
dents. After the politician refused requests to access the well, residents
filed complaints and got local newspapers to write about the problem.
With the help of some NGOs, the citizens used the RTI Act to ask the
authorities to provide copies of the gift deed signed by the father as well
as information on any public money spent to maintain the well. Based
on this information and despite the inevitable bureaucratic complica-
tions, the politician’s wall was declared illegal, and he was ordered to
demolish it within a week. Since then, citizens have been able to draw
water from the well.
Instead of access to information, Stromberg (2004) focuses on the
circulation of information. Specifically, the paper uses a natural exper-
iment to examine how access to radios in the USA since the early twen-
tieth century has affected corruption. The focus on the introduction
of new media technologies is very useful. Such introduction causes
dramatic changes in people’s access to mass media as well as large geo-
graphic variations in the share of the population with access to the new
media. Radio was introduced as a mass medium in the early 1920s and
expanded rapidly to reach a household penetration rate of around 80
percent by 1940. This brought about major changes in voter access to
mass media because radio was the first broadcast media with charac-
teristics very different from print media. During the period of radio’s
introduction, the USA also witnessed rapid changes in economic pol-
icy-making. In the middle of radio’s expansion period, the New Deal
was launched.
The paper investigates the extent to which radio influenced the distri-
bution of funds in a New Deal program which provided unemployment
292    
K. Sekkat

relief and was implemented over the period 1933–1935. This program
in question was the largest of the early New Deal programs and was
administered by the Federal Emergency Relief Administration (FERA).
The allocation of the relief funds was, however, the responsibility of the
governor.
The empirical analysis investigates whether governors spent more
money in areas where a large share of the population had a radio. The
analysis was conducted for up to 2500 US counties over the period
1920–1940. The dependent variable is the per capita amount of the
state relief budget allocated by the governor to a given county. The main
explanatory variables are the share of households with radios in the
county, the share of illiterate people in the county, and school enrol-
ment in the county. Controls include voter density, population density,
unemployment rate, farm value, and ethnic composition.
The findings confirm that governors allocated more relief funds to
areas where a larger share of the population had radios. The effects are
both statistically and economically significant. A one-percentage-point
increase in the share of households with radios increases per capita relief
spending by 0.6%. Similarly, a one standard deviation increase raises
spending by nine percent. Finally, a move from the lowest to the mean
share of households with radios increases spending by 60%.
An important by-product of the study concerns the effect of illiteracy.
Fewer relief funds are allocated to areas with a large share of illiterate
people. The reason is that illiterate people are less likely to be informed
about who is responsible for cuts in the amount allocated to their
county. The effect of illiteracy is economically significant. A one-per-
centage-point increase in the illiteracy rate makes governors cut spend-
ing by more than 1%.
A similar analysis in spirit is conducted by Besley and Burgess (2002)
to examine the impact of mass media in inciting local government to
meet citizens’ needs across Indian states. The newspaper industry in
India publishes in English, Hindi, and in many other languages, such
as Assamese, Bengali, Gujarati, and Urdu. In contrast to the majority
of other developing countries, the Indian press is relatively free and
independent, which provides an opportunity to learn about govern-
ment responses to local conditions. The authors focus on how the media
13  Civil Society and the Media    
293

affect the public distribution of food and state government expendi-


tures on calamity relief across the 16 major Indian states over the period
1958–1992. The Famine Relief Codes put in place after 1880 govern
public distribution of food and calamity relief in India. Elected state
governments are responsible for looking at signs of crises, such as large
drops in food production and increases in food prices, and for counter-
acting the possible damage by increasing the public distribution of food
and setting up public works programs and relief centers.
Per capita public food distribution and calamity relief expenditure are
explained in terms of the circulation of all newspapers. The breakdown
of newspapers by language of circulation is also considered. Control
variables include drought and flood, food grain production, political
competition and population density. The analysis shows that public
food distribution and calamity relief expenditure increase with electoral
accountability and newspaper circulation.
A similar question to that of Besley and Burgess (2002) is investi-
gated by Ferraz and Finan (2008) for Brazil. In 2003, the federal gov-
ernment started randomly selecting municipal governments to be
audited regarding their use of federal funds. After completion of the
audit, the results are communicated to the municipalities, federal prose-
cutors, media, and posted on the Internet. The authors study the effects
of such disclosure of local governmental practices on the electoral out-
comes of incumbents in 373 Brazilian municipalities. Specifically, the
analysis compares electoral outcomes of the 2004 municipal elections
for mayors eligible for re-election. The authors seek to assess the effects
of publicizing the audits in terms of the type of information disclosed
and the presence of the local media. To this end, they construct an indi-
cator based on the number of times irregularities appear in the audits
and define this sum as a measure of corruption. The irregularities con-
cern fraud in procurements, diversion of public funds, or over-invoic-
ing. The indicator of corruption is explained in terms of newspaper
circulation and other control variables such as mayoral characteristics,
socioeconomic characteristics of the municipality, the proportion of
mayors who ran for re-election in 2004, the number of parties in 2000,
per capita income, and income inequality.
294    
K. Sekkat

The results show that the publicity of information concerning cor-


ruption had a significant effect on incumbents’ electoral performance.
It reduced the incumbent’s likelihood of re-election by seven percent-
age points (or 17%) in municipalities where at least two violations were
reported. Moreover, corrupt politicians were punished relatively more in
places where local radio stations were present and divulged the findings
of the audit reports. Finally, while divulgation by local radio negatively
affected outcomes for corrupt mayors, it promoted non-corrupt incum-
bents by markedly increasing their likelihood of re-election.
Transparency International (2006) focuses on the impact of the
Mexican Transparency and Access to Public Information Law intro-
duced in June 2002. This law proved helpful to civil organizations
fighting corruption. For example, in 2003 Mexico’s Congress voted for
programs that were intended to promote women’s health and in par-
ticular HIV/AIDS programs. Out of a total budget of US$56.5 million,
senior officials from Congress and the Health Ministry decided that
US$2.8 million should be allocated to a private organization, Provida,
and targeted toward HIV/AIDS public campaigns. Six Mexican Civil
Society Organizations (CSOs) felt concerned about the reasons for the
budget’s alteration. They arranged for the budget to be investigated to
see how the US$2.8 million was spent and found evidence of misuse
and corruption, including collusion between Provida and some of its
suppliers, purchases of luxury pens, clothing and groceries, together
with numerous other fiscal inconsistencies.
The CSOs revealed their findings at a press conference in June 2004
at which they launched a campaign demanding transparency and
accountability. In April 2005, after many twists and turns, the officials
involved were dismissed, and Provida’s legal representative was fined and
forbidden from occupying public office. Although the US$2.8 million
was not returned and no fine was paid, the cause for greater and effec-
tive transparency was strongly promoted thanks to the CSOs’ actions.
Reinikka and Svensson (2005) investigate the impact of a newspaper
campaign which provided schools and parents with information about
local officials’ handling of a large education grant program in Uganda.
The source of this newspaper campaign was a Public Expenditure
Tracking Survey (PETS) conducted for the government to gauge to
13  Civil Society and the Media    
295

what extent public resources reached schools. The surveys showed that
in the mid-1990s a school received, on average, only around 20% of
the resources released by the central government for the program. Most
schools received nothing. The lion’s share of the grants was captured by
local government officials (and politicians) in charge of disbursing the
grant to the schools. Moreover, schools in poorer communities suffered
significantly more from capture. As a result, the government initiated
a newspaper campaign (in the national newspapers and their local lan-
guage editions) giving data on monthly transfers of grants to districts.
To assess the effects of improved access to public information on
capture of funds, Reinikka and Svensson (2005) use two waves of the
PETS: the original 1996 survey and another conducted in 2002. The
original survey was conducted over 250 schools, randomly drawn from
18 districts. The 2002 survey revisited these original schools plus an
additional 170 schools from 9 of the original 18 districts. The meas-
ures of the effectiveness of the press campaign (the dependent variables)
are school-specific and measure the extent of capture, enrolment, and
scores. The extent of capture is measured as the share of the total grants
disbursed by the central government that was effectively received by a
school. A low value indicates that the school suffers more from local
capture. The explanatory variable of interest measures head teachers’
knowledge about the grant program, which comes mainly from their
exposure to the newspaper campaign. Control variables include the
municipality’s average income and fixed effects.
The results show that following the start of the campaign, schools
with more informed head teachers experienced significantly larger
reductions in local capture. The effect is economically large: A one
standard deviation increase in head teacher information results in a
1.1 standard deviation increase in the amount that reaches the school.
Regarding enrolment, a one standard deviation increase in the share
of spending reaching the school results in a 0.66 standard deviation
increase in school enrolment. Finally, in a previously “high capture” dis-
trict but where head teachers have been exposed to the newspaper cam-
paign, students scored on average 0.42 standard deviations better than
those in districts where head teachers were less exposed to the newspa-
per campaign.
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3 Conclusion
In various parts of the preceding chapters, we have pointed to the
importance of transparency, accountability, and control in fighting cor-
ruption. The media are very helpful in accomplishing these tasks, espe-
cially since a number of fields and dimensions related to corruption are
very complex. The studies show a strong association between the level of
press freedom and the level of corruption, suggesting that an independ-
ent press may represent an important weapon against corruption. The
speed with which information circulates is also crucial. Historical stud-
ies suggest that the introduction of radios, television, and the Internet
have strengthened the influence of information by increasing the speed
of transmission and reaching a broader population. However, informa-
tion and publicity must be independent from the government. Finally,
the results also show that education and the media strongly comple-
ment each other in fighting corruption. In countries with low levels of
education, citizens are not able to efficiently access, process, and use
information.

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Accountability and Quality of Government. Journal of Law Economics and
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Banisar, D. (2006). Freedom of Information Around the World 2006: A
Global Survey of Access to Government Information Laws. London: Privacy
International.
Besley, T., & Burgess, R. (2002). The Political Economy of Government
Responsiveness: Theory and Evidence from India. Quarterly Journal of
Economics, 117(4), 1415–1451.
Bignon, V., & Flandreau, M. (2011). The Economics of Badmouthing: Libel
Law and the Underworld of the Financial Press in France Before World War
I. Journal of Economic History, 71(3), 616–653.
Brunetti, A., & Weder, B. (2003). A Free Press Is Bad News for Corruption.
Journal of Public Economics, 87(7), 1801–1824.
Costa, S. (2012). Do Freedom of Information Laws Decrease Corruption?
Journal of Law Economics and Organization, 29(6), 1317–1343.
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Court, J., Hyden, G., & Mease, K. (2003). The Judiciary and Governance in 16
Developing Countries (World Governance Survey Discussion Paper No. 9).
Tokyo: United Nations University.
de Figueiredo, M. F. P., Hidalgo, F. D., & Kasahara, Y. (2013). When Do Voters
Punish Corrupt Politicians? Experimental Evidence from Brazil. Department
of Political Science. Berkeley: University of California.
Ferraz, C., & Finan, F. (2008). Exposing Corrupt Politicians: The Effects of
Brazil’s Publicly Released Audits on Electoral Outcomes. Quarterly Journal
of Economics, 123(2), 703–745.
Ferraz, C., & Finan, F. (2011). Electoral Accountability and Corruption:
Evidence from the Audits of Local Governments. American Economic
Review, 101(4), 1274–1311.
Gentzkow, M., Glaeser, E. L., & Goldin, C. (2006). The Rise of the Fourth
Estate. How Newspapers Became Informative and Why it Mattered. In E.
L. Glaeser & C. Goldin (Eds.), Corruption and Reform: Lessons from America’s
Economic History (pp. 187–230). Chicago: University of Chicago Press.
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Lindstedt, C., & Naurin, D. (2006). Transparency Against Corruption-A
Cross-Country Analysis (pp. 9–13). In IPSA 20th World Congress.
Fukuoka, Japan. https://Pdfs.Semanticscholar.Org/2c20/
F9805f55256e78640f8733314f3aef8c64fe.Pdf. Accessed 2 April 2018.
Peisakhin, L., & Pinto, P. (2010). Is Transparency an Effective Anti-Corruption
Strategy? Evidence from a Field Experiment in India. Regulation &
Governance, 4(3), 261–280.
Reinikka, R., & Svensson, J. (2004). Local Capture: Evidence from a Central
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119(2), 679–705.
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European Economic Association, 3(2–3), 259–267.
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Engagement: Evidence from Brazil. Journal of Politics in Latin America, 7(1), 45–81.
14
Civil Society and the Specific Role of ICT

The efficacy of information and the media as weapons against corrup-


tion having been documented, this chapter discusses the complemen-
tary role of Information and Communication Technology (ICT).
Including ICT can be more effective in combating corruption than
relying on traditional media alone. ICT enables citizens to access many
government services online, which weakens the role of bureaucrats as
intermediaries between the government and the public. Moreover, cit-
izens can use the “social web” to communicate their opinions, suggest
possible solutions, expose misbehavior, and promote ethical behavior
over long distances very quickly. Very importantly, ICT greatly facili-
tates investigation and asset tracking. Empirical findings reveal that ICT
does indeed have a significant role in reducing corruption. Interestingly,
e-government and Internet penetration do a better job of explaining
variations in corruption among countries than bureaucratic quality and
law enforcement.

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K. Sekkat, Is Corruption Curable?, https://doi.org/10.1007/978-3-319-98518-3_14
300    
K. Sekkat

1 Expected Impacts of ICT on Corruption


Spreading information about officials’ misbehavior increases the risk
of detection and makes the corrupt behavior less attractive. Over time,
these features have spurred governments around the world to rely on
ICT not only to provide better service to citizens but also as a means
of fighting corruption. This evolution led to what is now commonly
referred to as “e-government”, which emerged with the development of
government Web sites in the late 1990s. E-government refers to a gov-
ernment’s use of ICT to enhance access to and delivery of information
and services to citizens, business partners, employees, other agencies,
and other government entities. E-government is also expected to help
build better relationships between the government and the public by
making interactions with citizens smoother, easier, and more efficient
(Layne and Lee 2001).
There are several reasons why including ICT can be more effective
in fighting corruption than relying only on traditional media (SPIDER
2010). First, by allowing citizens access to government services online,
ICT removes the role of bureaucrats as intermediaries between the gov-
ernment and the public, thus limiting interactions between potentially
corrupt officials and the public. Second, online systems require stand-
ardized rules and procedures. This reduces bureaucratic discretion and
increases transparency as compared with the arbitrariness of civil serv-
ants dealing with the public on a case-by-case basis. Third, the infor-
mation held by government agencies, or individual civil servants, on
electronic platforms is, in general, automatically provided in forms
defined by laws and protocols linking different databases. Automation
and protocols highly limit the ability of an individual to exert influence
by manipulating or censoring information. Fourth, ICT has markedly
fostered social interaction over long distances through a “social web”
where users can communicate their opinions, suggest possible solu-
tions, expose misbehavior, and promote ethical behavior. ICT can also
be very useful in investigation and asset tracking. Fifth, besides these
practical advantages, ICT has a first-order impact on economic growth.
Since economic growth is frequently reported to lower corruption, this
14  Civil Society and the Specific Role of ICT    
301

technology is likely to help in reducing corruption. Sixth, since rapid


technological change encourages, in general, investment in human capi-
tal and since human capital accumulation is often hostile to corruption,
ICT can help to reduce corruption through this channel (Andersen
et al. 2011).

2 Actual Impacts of ICT on Corruption


One of the most successful experiences with ICT as a weapon against
corruption is the Online Procedures Enhancement (OPEN) system
of the Seoul Metropolitan Government (SMG). The system was sug-
gested and supported by Mayor Kun Koh as a means to fight corruption
within the SMG (Kim et al. 2009). This followed a series of corruption
scandals that had affected the SMG.
Developed by the SMG and launched on April 15, 1999, OPEN
aimed at achieving transparency in the civil administration and pre-
venting unnecessary delays and unfair handling of civil affairs on the
part of civil servants. Before the introduction of OPEN, citizens had to
spend a long time waiting for city offices to deal with their affairs. The
introduction of the system and the display of information in standard-
ized forms allowed citizens to save a lot of time by being able to browse
details online at home. OPEN also provides application status notifica-
tions through short message services (SMS) and email and opens every
detailed procedure of all services, helping to increase trust between civil
officers and citizens.
Eight years after the introduction of OPEN, more than 6.7 mil-
lion citizens had visited the site and more than 2.9 million document
registrations had been recorded. The percentage of delayed data input
had decreased from 15 to 2% and the services had been extended to
other tasks. Meanwhile, the SMG’s anti-corruption index climbed
from 64 in 1999 to 84.9 in 2006. Finally, an integrity assessment per-
formed by the Korea Independent Commission Against Corruption
(KICAC) confirmed this success. Citizens, public administration spe-
cialists, and government employees voted the OPEN system Seoul’s
Most Valuable Policy in 1999 and 2000. As a result, the OPEN system
302    
K. Sekkat

gained recognition from international organizations such as the UN,


the OECD, and the World Bank in addition to reputable media out-
lets like Business Week and Time. Several countries, including Vietnam,
Indonesia, Bulgaria, Japan, China, Egypt, and Nepal drew on the
OPEN experience when developing their own anti-corruption strate-
gies. The system was also recognized by the central government of Korea
as a success and included in the “Saeol”, an e-government system which
has been implemented and is being used nationwide.
Mistry and Jalal (2012) examine and compare the impact of e-gov-
ernment on corruption in developed and developing countries.
Specifically, the paper investigates two questions. The first concerns
the existence of an impact of e-government on corruption. The sec-
ond focuses on whether this potential impact differs across countries.
In order to address the two questions, an equation explains the change
in corruption (between 2003 and 2010) in terms of the change in the
E-government Development Index (EDI) (between 2003 and 2010),
the country’s level of development, and an interaction term between
e-government and the country’s level of development. The interaction
makes it possible to test whether the impact of e-government on cor-
ruption is higher or lower in developed countries. The measure of cor-
ruption is the Corruption Perceptions Index, while e-government is
based on the UN Readiness Index, later renamed the EDI. Control var-
iables include per capita real GDP, the black market premium, bureau-
cracy, and civil rights.
The results support the hypothesis that e-government decreases cor-
ruption. A 1% increase in the e-government index results in a 1.17%
decrease in corruption. Moreover, developing countries benefit most
from increased use of e-government
Andersen (2009) uses IV estimation methods to examine whether
the association between e-government and corruption can be given
a causal interpretation. The paper focuses on 149 non-OECD coun-
tries observed in 1996 and in 2006. The measure of corruption is the
WB Control of Corruption Index. The e-government variable is drawn
from West (2006). Control variables include country fixed effects, real
GDP per capita, and press freedom. The results show that e-govern-
ment has an important impact on corruption: An increase from the
14  Civil Society and the Specific Role of ICT    
303

10th percentile to the 90th percentile in the e-government distribution


is associated with a movement from the 10th percentile to the 23rd per-
centile in the “control of corruption” distribution.
Since the Internet is the main vehicle used to operate e-government,
Andersen et al. (2011) investigate the causal impact of Internet on cor-
ruption using IV estimation methods. The study considers the impact
across 48 contiguous US states and across 105 countries. For the USA,
corruption convictions are used as dependent variables. The change
in this variable between 1991 and 2006 is explained in terms of the
change in Internet use over the same period. Internet use is measured
by the percentage of households with Internet access and comes from
the Current Population Survey (CPS). Control variables include initial
state population, the growth of state population, and the initial level
of corruption. In the cross-country analysis, the change in the ICRG
index of corruption between 1991 and 2006 is the dependent varia-
ble. It is explained in terms of the change between 1991 and 2006 in
the number of Internet users per 100 people, which is drawn from the
International Telecommunication Union.
The results are statistically significant, suggesting that the Internet has
helped to suppress corruption since its emergence. Although the effect
is stronger for the USA, the cross-country analysis suggests that the US
state-level results generalize to an international setting.
Elbahnasawy (2014) uses a different test of causality from that of
Andersen et al. (2011) in order to examine the impact of e-government
and Internet adoption on corruption. The paper implements Granger
causality tests on a sample of 160 countries over the period 1995–2009.
The measure of e-government comes from the United Nations. The
measure of corruption is the TI Corruption Perceptions Index (CPI).
Internet adoption is measured by the number of Internet users per
100 people, which is obtained from the WB. The set of control vari-
ables includes GDP per capita, openness to international trade, law
enforcement, and the Property Rights (PR) Index from the Heritage
Foundation.
The results of the Granger causality tests suggest that a higher e-gov-
ernment index reduces corruption, but not the other way round. The
results of panel Granger causality tests indicate that causality between
304    
K. Sekkat

Internet adoption and corruption is bidirectional. Interestingly, the


driving force behind the favorable impact of e-government on curbing
corruption is the telecommunication infrastructure. This suggests that
e-government and Internet adoption should be considered as comple-
ments, rather than substitutes, in anti-corruption programs. In addi-
tion, e-government reinforces the influence of law enforcement on
corruption reduction.
Lio et al. (2011) also conduct Granger causality tests between
Internet adoption and corruption reduction but add to the analysis by
quantifying the effect. Using a panel of 70 countries over the period
1998–2005, the paper defines Internet adoption as the number of
Internet users per 100 inhabitants and the level of corruption by the
CPI. The results of the Granger causality tests reveal that the causality
between Internet adoption and corruption is bidirectional, which is in
line with the preceding study. One lesson is that the estimated effects of
Internet adoption on corruption reduction may be overestimated if the
bidirectional causality is not taken into account.
To quantify the effect of Internet adoption on corruption, the
authors employ the dynamic GMM model. This model makes it pos-
sible to take into account the reverse causality running from corruption
to Internet adoption by using an instrumental variables approach and
exploiting the dynamic properties of the sample. The model explains
the CPI in terms of Internet adoption, GDP per capita, and the level
of education in the country. The estimation results show a statisti-
cally significant effect of Internet adoption on corruption reduction.
The economic effect is, however, not substantial, which confirms the
importance of taking into account the bidirectional causality between
Internet and corruption. On average, an increase of ten in the number
of Internet users per 100 inhabitants improves the CPI by about 0.05
points on a ten-point scale, which is not a substantial amount.
Assuming that greater corruption awareness acts as a corruption
deterrent, Goel et al. (2012) investigate the effect of Internet aware-
ness about corruption on the prevalence and perceptions of corrup-
tion. The originality of this paper lies in the measure of awareness
about corruption, which is based on a search for keywords “corrup-
tion”, “bribery”, and “country name” through the two leading Internet
14  Civil Society and the Specific Role of ICT    
305

search engines (Google and Yahoo). The approach adopted in the paper
clearly improves on the other measure of Internet diffusion, because an
Internet user can surf the Web without paying any particular attention
to corruption. The searches were conducted for 150 countries over two
separate time periods: December 2009 and January 2011. The aver-
ages of the Google and Yahoo results are normalized using the country’s
population to produce a country score of corruption awareness. Three
well-known indexes of corruption (CPI, the World Bank index, and
the World Business Environment Survey index) are used as dependent
variables. Each of these indexes is explained in terms of the country’s
search score, real GDP per capita, government size, degree of economic
freedom, democratic accountability, bureaucratic quality, and law and
order.
The results show that corruption awareness is associated with lower
corruption. A one standard deviation increase in a country’s Internet
score decreases corruption as measured by the CPI is 0.18. The corre-
sponding impact on corruption as measured by the WB is 0.07. For the
World Business Environment Survey index, the same increase in cor-
ruption awareness is far more significant, resulting in a change of over
three points in this corruption index, which ranges from one to six.
Shim and Eom (2009) focus on the role of social capital in comple-
menting the role of ICT as a corruption deterrent. Broadly defined,
social capital is comprised of social organizations and networks, norms
and social trust which facilitate citizens’ coordination and cooperation
for mutual benefit. Combining ICT and social capital can be a major
factor in corruption reduction. On the one hand, ICT not only reduces
unnecessary human intervention in government work but also speeds
up information circulation and facilitates interactions among citizens.
On the other hand, a high level of social capital makes citizens more
actively involved in political decision-making and increases the likeli-
hood that corrupt behavior by public employees will be exposed to a
densely connected public.
The study uses the CPI as a measure of corruption. This is explained
in terms of the E-Government Readiness and E-Participation Indexes
(both from the UN) and Internet penetration from the World Bank.
The measure of the other explanatory variable of interest (social capital)
306    
K. Sekkat

is based on the World Values Survey (WVS). This is an international


research project that measures the values of people from around the
world. The survey has been conducted in successive waves since 1981
and asks citizens around the world several questions about social values
in their countries. The responses to the two following questions from
the 1999 and 2004 waves are used:

1. In general, do you think that most people can be trusted?


2. Do you find the following justifiable: (i) claiming government bene-
fits, (ii) avoiding a fare on public transport, (iii) cheating on taxes, or
(iv) accepting bribes?

The results reveal that both ICT and social capital have significant
and independent roles in reducing a country’s corruption, even after
controlling for traditional anti-corruption indicators. Interestingly,
e-government and Internet penetration do a better job of explaining
variations in corruption among countries than bureaucratic quality and
law enforcement. The results concerning the role of social capital in
complementing the effect of ICT on corruption are inconclusive.
While the majority of studies on the impact of ICT on corruption
focus on the Internet, this is not the only component of ICT that can
play against corruption. Unfortunately, formal studies directly linking
non-Internet ICT components and corruption are almost inexistent.
However, indirect inferences can be made. Since the preceding paper
(Shim and Eom 2009) showed that social capital can be effective in
fighting corruption, studies revealing a link between other ICT com-
ponents and social capital might support the existence of a relationship
between such components and corruption. Campbell and Kwak (2010)
examine the impact of mobile phones and their embedded applications
on civic and political engagement, which are two dimensions of social
capital (See Chapter 15).
The data come from a national mail survey that was conducted in
the USA immediately following the 2006 mid-term congressional elec-
tions. A large number of people were contacted and asked questions
about their personal characteristics, civic engagement, political partic-
ipation, along with the intensity and purpose (recreation, sociability,
14  Civil Society and the Specific Role of ICT    
307

information, and opinion exchanges) of mobile phone use. Civic


engagement concerns involvement in volunteer and community activ-
ities (doing volunteer work, working on a community project, con-
tributing money to a social group or cause, going to a community or
neighborhood meeting, and working on behalf of a social group or
cause). Political participation includes attending political gatherings
(meeting, rally, or speech), circulating a petition for a candidate or issue
and contacting a public official or a political party. These two variables
are explained in terms of intensity and purpose of mobile phone use
and control variables (age, gender, education, household income, and
political interest).
The results reveal a positive relationship between mobile phone use
for information exchange and civic and political involvement. However,
individuals who feel more comfortable with mobile phones and who use
them for exchanging information about public affairs tend to be more
civically and politically engaged than those who are less comfortable
with the technology.
Cheng et al. (2015) conduct a similar study to the one above but
focused on China. Using the results of a survey of university students
in three Chinese cities (Guangzhou, Shenzhen, and Zhuhai), the
authors examine the relationship between mobile phone uses and civic
engagement. The survey used a questionnaire pertaining to different
reasons for mobile phone use and different types of civic engagement.
The authors consider four reasons for using a mobile phone: techno-
logical accessibility, information exchange, social interaction, and rec-
reation (e.g., relaxation, fun, fashion, and status). Civic engagement
includes a range of activities such as individual voluntarism, organiza-
tional involvement, and electoral participation. Both the online and the
offline dimensions of civic engagement are considered. Each of the civic
engagement variables is explained in terms of the different reasons for
mobile phone use and various control variables such as gender, age, and
education level.
The results show that accessibility, information exchange, and social
interaction are important determinants of individuals’ engagement in
civic activities. Surprisingly, fashion and status were also found to be
significant determinants of civic engagement. According to the authors,
308    
K. Sekkat

a possible explanation is that catching up on the latest social trends


stimulates individuals’ attention to and interaction on current events. In
this sense, fashion/status is not only a type of recreational gratification,
but also reflects the need for social connection. Neither entertainment
nor affection was a significant predictor of civic engagement.

3 Conclusion
Information and Communication Technology (ICT) and e-government
are increasingly being adopted by many countries as a weapon against
corruption. They give access to many government services online and
therefore markedly reduce the importance of the role played by bureau-
crats as intermediaries between the government and the public, so
decreasing the opportunities for corruption. ICT is also very helpful in
investigating and tracking “lost” assets. Moreover, ICT complements
the role of the media as a tool against corruption. Information, com-
munication, and interactions can be exchanged over long distances in
a short time. Thus, through the “social web”, citizens who live far apart
can quickly communicate their opinions, suggest possible solutions,
expose misbehavior, and promote ethical behavior.
Assessments of various initiatives around the world converge in con-
sidering that e-government is a clear success. E-government decreases
corruption. Developing countries are found to benefit most from
increased use of e-government. Unsurprisingly, the driving force behind
the favorable impact of e-government on curbing corruption is the tel-
ecommunication infrastructure. E-government and Internet adoption
seem to be complements, rather than substitutes, in anti-corruption
programs. Interestingly, e-government and Internet penetration do a
better job of explaining variations in corruption among countries than
bureaucratic quality and law enforcement. Another component of ICT,
mobile telephony, has also been found to be very useful for information
exchange and civic and political involvement. However, the benefits in
terms of civic and political engagement mainly concern individuals who
feel comfortable with using mobile phones.
14  Civil Society and the Specific Role of ICT    
309

References
Andersen, T. B. (2009). E-government as an Anti-Corruption Strategy.
Information Economics and Policy, 21(3), 201–210.
Andersen, T. B., Bentzen, J., Dalgaard, C. J., & Selaya, P. (2011). Does
the Internet Reduce Corruption? Evidence from US States and Across
Countries. World Bank Economic Review, 25(3), 387–417.
Campbell, S. W., & Kwak, N. (2010). Mobile Communication and Civic
Life: Linking Patterns of Use to Civic and Political Engagement. Journal of
Communication, 60(3), 536–555.
Cheng, Y., Liang, J., & Leung, L. (2015). Social Network Service Use on
Mobile Devices: An Examination of Gratifications, Civic Attitudes and
Civic Engagement in China. New Media and Society, 17(7), 1096–1116.
Elbahnasawy, N. G. (2014). E-Government, Internet Adoption and
Corruption: An Empirical Investigation. World Development, 57, 114–126.
Goel, R. K., Nelson, M. A., & Naretta, M. A. (2012). The Internet as an
Indicator of Corruption Awareness. European Journal of Political Economy,
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Layne, K., & Lee, J. (2001). Developing Fully Functional E-Government: A
Four Stage Model. Government Information Quarterly, 18(2), 122–136.
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15
Civil Society and the Role of Education

Although ICT is spreading very quickly around the world, its use in
administrative and political processes is not accessible to everybody,
especially in developing countries where infrastructure is poor and a
large portion of the population is illiterate. Education is crucial in order
to address these shortcomings. In addition to enabling the effective use
of ICT in the fight against corruption, education can affect citizens’
attitudes toward corruption in important ways. Schools play a prime
role in the formation of citizenship, providing the first non-familial
context in which individuals’ moral and thinking capacities are devel-
oped. Students at school learn about basic norms and responsibilities,
find out how democracy functions, and are encouraged to participate in
social activities which foster trust and reciprocity. Moreover, by enroll-
ing students from different socioeconomic backgrounds in the same
system, schools lead to the creation of mutual respect. Research results
support the idea that education has an impact on corruption. There is
a strong correlation between the average number of years of schooling
and corruption. Moreover, additional schooling, both at the secondary
and at the post-secondary levels, has large and statistically significant

© The Author(s) 2018 311


K. Sekkat, Is Corruption Curable?, https://doi.org/10.1007/978-3-319-98518-3_15
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effects on voter participation, the frequency of newspaper readership,


and the degree of support for controversial free speech.

1 Expected Impacts of Education


on Corruption
1.1 Social Capital and Corruption

The paper by Shim and Eom (2009) that we discussed in the preced-
ing chapter shows that social capital acts as a deterrent to corruption.
Broadly defined, social capital consists of social organizations and net-
works, norms and social trust which facilitate citizens’ coordination and
cooperation for mutual benefit. Although it has become very popular
in economics during recent decades, the term does not embody a new
concept for sociologists. The idea that involvement and participation in
groups can have positive consequences for both individuals and com-
munities is a notion dating back to Durkheim’s emphasis on the role
of “group spirit” as an antidote to anomie and self-destruction and to
Marx’s distinction between an atomized class-in-itself and a mobilized
and effective class-for-itself (Portes 1998).
The main features of social capital are membership of social networks
or associations, high levels of interpersonal trust, and norms of mutual
aid and reciprocity (Lochner et al. 1999). The level of social capital in a
society is, therefore, measured by indicators such as the density of mem-
bership in voluntary associations of all kinds, the extent of interper-
sonal trust between citizens, their perceptions of the value of mutual aid
and connections (neighborhood, work, family and friends), tolerance
of diversity, civic engagement, and active citizenship (Lochner et al.
1999). Empirical analyses dealing with social capital are based on sur-
veys of households and communities which collect answers to questions
useful for the construction of the relevant indicators (Woolcock and
Narayan 2000). However, such empirical evidence is still scarce. Knack
and Keefer (1997), using indicators of trust and civic norms from the
World Values Survey, find that in a sample of 29 market economies,
15  Civil Society and the Role of Education    
313

“social capital” matters to measurable economic performance. Trust


and civic norms are stronger in nations with higher and more equal
incomes, institutions that restrain predatory actions of chief executives,
and better-educated and ethnically homogeneous populations. Narayan
and Pritchett (1999) construct a measure of “social capital” in rural
Tanzania based on the extent and characteristics of individuals’ associa-
tional activity and trust in various institutions and in other individuals.
They show that “social capital” is both capital, in that it raises incomes,
and social, in that household outcomes depend on village social capi-
tal not just on household social capital. The magnitude of the effect of
social capital on incomes is impressively large: a one standard deviation
increase in village social capital increases household expenditures per
person (a proxy for income) by at least 20–30%. This impact is as large
as an equivalent increase in non-farming assets or a threefold increase
in the level of education. Beugelsdijk and Van Schaik (2005), using a
cross-section of 54 European regions, examine whether regional differ-
ences in economic growth are related to social capital, in the form of
the generalized trust and associational activity. They show that growth
differentials in European regions are positively related to social capital
measured by associational activity. The simple existence of a network
does not stimulate regional economic growth but active involvement in
networks does.
It appears therefore that social capital acts as a resource for individ-
uals and facilitates collective action. A community well endowed with
social capital is likely to have effective civic institutions, to prosper
and to succeed in maintaining law and order (Woolcock and Narayan
2000). Family, friends, and associates constitute an important asset
which can be called upon in a crisis, enjoyed for its own sake, or used
for material gain. Since what is true for individuals also holds for
groups, communities endowed with diverse social networks and civic
associations will be in a strong position to confront poverty and vul-
nerability and to take advantage of new opportunities. Moreover, social
capital reinforces the call for information disclosure policies and culti-
vates citizens’ demand for accountability.
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1.2 Education and Social Capital

It follows from the above discussion that as the level of social capital
in a country increases, the occurrence of corruption should become
less likely. Accordingly, countries concerned with the issue of corrup-
tion should seek to improve the quantity and quality (more trust, more
participation, and so on) of their social capital. To this end, education
can be a very effective tool. Education is commonly associated with the
acquisition of reading and writing skills, which are prerequisites for cit-
izens’ efficient use of the information provided by the media and ICT.
It can therefore make a marked contribution to the fight against cor-
ruption. However, the impact of education is not limited to the acquisi-
tion of such “technical” skills and touches on the building of a country’s
social capital. Accordingly, education plays a prime role in the forma-
tion of citizenship. Education can both enhance the quality of partici-
pation by individual citizens and foster a spirit of participation among
large groups of citizens (Milligan et al. 2004).
Regarding the quality of participation, education equips citizens with
tools for effective participation in a representative democracy. The skills
acquired thanks to education reduce the costs and complexity associ-
ated with participation. Education also encourages citizens to defend
civic values and helps them assess the behavior of the institutions gov-
erning the country. Accordingly, education increases citizens’ ability to
select able leaders, understand the issues upon which they will vote, act
as a check on potential abuses by the government, monitor bureaucratic
proficiency, and expose corrupt leaders (Brand 2010).
In terms of fostering a spirit of participation, schools are one of the
main drivers of socialization. They motivate students to recognize and
adhere to collective interests that override individual preferences, to
show civic behavior, to choose mutual respect and trust, and to foster
reciprocity. In fact, most colleges and universities encourage students
to participate in various forms of voluntary service. Empirical evidence
shows that participation during college positively affects citizens’ inter-
est in and knowledge of political issues, their involvement in the politi-
cal process, and the effectiveness of their political participation (Huang
15  Civil Society and the Role of Education    
315

et al. 2009). Moreover, by enrolling students from different socioeco-


nomic backgrounds in the same system, schools foster acceptance of dif-
ference in races, religions, and opinions, which further develops mutual
respect.
The next section is devoted to a discussion of the empirical studies
tackling the nexus between corruption, social capital, and education.
It starts with the link between social capital and corruption, contin-
ues with the relationship between education and social capital, and
ends with studies that directly examine the link between education and
corruption.

2 Actual Impacts of Education on Corruption


2.1 Social Capital and Corruption

Grießhaber and Geys (2012) analyze the relationship between one


component of social capital (civic engagement) and corruption using
a sample of 20 European democracies and the Corruption Perceptions
Index (CPI) of Transparency International (TI) for the year 2003 as
the central dependent variable. The main independent variables incor-
porate information about citizens’ involvement in formal social net-
works. The information is extracted from the 2002/2003 round of the
European Social Survey (ESS), which asks respondents, among other
things, whether over the preceding 12 months they were members of,
participated in, donated money to or did voluntary work for one or
more of 12 types of association (sports/outdoor activity, culture/hobby,
trade unions, professional, consumer, humanitarian/human rights, envi-
ronment/peace/animal rights, religious, political, education/teachers/
parents, social club, other). A distinction between exclusive and inclu-
sive social capital is made, based on the difference between the networks
or organizations in which the respondent participates. Exclusive social
capital is associated with a strong in-group/out-group distinction and
inward orientation. It focuses predominantly on members’ personal
interests. Inclusive social capital has a broader societal focus that spans
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across the boundaries of the organization. GDP per capita is used as a


control variable.
The results show that the level of perceived corruption in a coun-
try is negatively associated with a society’s degree of civic engagement.
However, not all types of associations share the same positive effect. The
distinction between inclusive and exclusive networks reveals that only
involvement in inclusive networks is associated with lower corruption,
while involvement in exclusive networks shows the reverse tendency.
Uslaner (2005) focuses on the causal links between one component
of social capital, namely trust, and corruption. The analysis considers
23 developed and developing countries and uses the 2SLS estimation
method, which makes it possible to determine the cause(s), the conse-
quences(s), and the potential existence of a reciprocal causation. Trust
and corruption are the dependent variables. Corruption is measured by
the CPI for the year 1998. It is explained in terms of generalized trust,
external tariffs, protection of property rights, democratic freedoms in
a country, and a measure of how strongly people believe that the devil
exists. Trust data come from the World Values Survey and pertain to
year 1995. They concern the response to the question: “Generally
speaking, do you believe that most people can be trusted, or can’t you
be too careful in dealing with people?” Trust is explained in terms of
corruption, the percentage of Catholics in the population, and the level
of economic inequality. Two versions of the system are estimated: one
uses variables in levels and the other uses variables in first differences.
The estimates using variables in levels suggest that trust causes cor-
ruption. According to the corruption regression, more than half of the
total distance between the most corrupt and the least corrupt coun-
tries in this sample is caused by trust. In the sample, the total distance
between the most corrupt and the least corrupt countries amounts
to 8.1 points, and moving from the least to the most trusting society
reduces corruption by 4.278 points. Belief in the devil has the same
general effect, changing corruption by 4.298 points. The other variables
have weaker effects. Moving from the least to the freest country reduces
corruption by 2.376 points. Countries with the greatest protection of
property rights have substantially less corruption (a reduction of 3.75
points). Turning to the impact on trust, the estimation shows that the
15  Civil Society and the Role of Education    
317

biggest impact comes from corruption. The impact of corruption is sub-


stantially larger than that of trust on corruption. Societies with more
economic inequality and with larger shares of Catholics are less trusting.
The estimates using variables in first differences suggest a more
important impact of trust on corruption. Countries that become more
trusting become less corrupt, and countries that become less trusting
show an increase in corruption. However, the analysis shows no causal
effect of corruption on trust. As societies become less corrupt, they
do not become more trusting. Hence, it appears that the most robust
causal link is from trust to corruption, not the other way around.
Hollard and Sene (2016) further highlight the role of trust by testing
the causal impact of self-reported trust on access to basic health facili-
ties in 16 sub-Saharan African countries. The barriers to access to basic
health facilities include corruption, costs, supply of medicine, doctor
absenteeism, long waiting times, dirty facilities, and lack of attention.
The data come from the Afrobarometer on health-center quality for the
year 2005. Each of the indicators of barriers to access to basic health
facilities is aggregated at the district level and explained in terms of
trust and control variables. Two indicators of trust are used: generalized
trust and trust in neighbors. The generalized trust indicator is measured
based on the General Value Survey (GVS) question: “Generally speak-
ing, would you say that most people can be trusted, or that you can-
not be too careful in dealing with people?” The district level of trust is
given by the percentage of individuals who answer “Most people can
be trusted”. The indicator of trust in neighbors is based on the ques-
tion: “How much do you trust your neighbors?” Respondents choose
between four possible answers: (i) not at all, (ii) just a little, (iii) some-
what, and (iv) a lot. Control variables include ethnic fractionalization,
median age, proportion of men, education, and proportions of religious
groups. Instrumental variable estimation is used to single out causality.
The results reveal a positive and significant effect of trust on health-
center quality. The coefficients are both highly significant and large.
A one standard deviation rise in trust leads to a fall of 0.221 standard
deviations in doctor absenteeism, 0.307 standard deviations in waiting
times, 0.301 standard deviations in bribes, and 0.330 standard devia-
tions in problems with poor facilities. Moreover, trust in neighbors
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K. Sekkat

seems to play a larger role than generalized trust regarding the ability to
produce local health-center quality.
Li and Wu (2010) take a different perspective to examine the role
of trust in relation to corruption. They examine whether the impact of
corruption on economic growth depends on the level of trust. In other
words, does corruption tend to reduce economic growth more in coun-
tries with a relatively low level of trust than in countries with a rela-
tively high level of trust? To test for this possibility, the authors conduct
a quantitative test using a pooled dataset of 65 countries in two time
periods: 1994–1999 and 1999–2004.
The dependent variable is economic growth and the two main varia-
bles of interest are corruption and trust. The estimated equation incor-
porates an interaction term between corruption and trust to test the
hypothesis that the effect of corruption on growth depends on the level
of trust. The measure of corruption is the CPI. The measure of trust
comes from the World Values Survey based on a question in the sur-
vey which asks: “Generally speaking, would you say that most people
can be trusted or that you cannot be too careful in dealing with peo-
ple?” The percentage of people answering “yes” over the total sample is
used as a measure of trust. Control variables include years of schooling
of the total population aged over 15 from Barro and Lee (2001) and
Freedom House’s classification of the political system of a country into
“Not Free”, “Partially Free”, and “Free”.
Econometric tests support the hypothesis that trust mitigates the
negative effect of corruption on economic growth. Corruption has
a negative effect on economic growth, trust shows a positive effect on
economic growth, and the interaction term has the expected sign. The
interaction term between corruption and trust suggests that the negative
effect of corruption on economic growth is reduced by a higher level of
trust.
López and Santos (2014) argue that trust can take different forms
with different impacts on corruption. They therefore split trust into two
categories. One category concerns universalistic or generalized trust,
which refers to the attitude toward society as a whole and favors the
functioning of the economy and society by bridging relationships with
members of different communities (ethnic, socioeconomic, and so on).
15  Civil Society and the Role of Education    
319

The other category concerns particularistic trust, which is made up of


family ties, relations with fellow members of the same family, or specific
groups with strong intra-group ties. Universalistic trust is expected to
constitute positive social capital that is negatively linked to corruption,
while particularistic trust constitutes negative social capital favoring cor-
ruption. Consequently, societies featuring family trust and strong intra-
group ties are more likely to develop networks that facilitate corruption
and even its social acceptability. This is especially the case when high
particularistic trust and very low general trust coexist.
Econometric tests of the predictions are applied to a cross-section of
60 countries for the year 2001. The TI corruption index is explained
in terms of trust indicators and a Global Freedom Index. Indicators of
universalistic or generalized trust and of particularistic trust are derived
from the World Values Survey. The analysis shows a clear link between
generalized trust and lack of corruption. Conversely, particularistic trust
is related to the presence of corruption.

2.2 Education and Social Capital

Dee (2004) seeks to identify possible causal effects of additional school-


ing on civic behavior. The paper uses the pooled 1972–2000 General
Social Surveys (GSS), which are nationwide surveys conducted on a
broad range of attitudes and behavior. The surveys concern persons who
lived in the USA at age 16 and were 14 years old between 1914 and
1978. In each survey, respondents were asked questions about their edu-
cational attainment and whether they voted in the last presidential elec-
tion. In most years, GSS respondents were also asked how often they
read newspapers, their group memberships (e.g., fraternal and commu-
nity service, political, school service, youth, church), and their attitudes
toward free speech for particular groups (homophobic, racist, etc.).
Control variables include gender, year of birth, and the quality of public
schools.
The econometric analysis shows that the number of years of com-
pleted schooling (main explanatory variable) influences each of the
measures of civic attitudes (dependent variable). The results suggest that
320    
K. Sekkat

additional schooling, both at the secondary and at the post-secondary


levels, has large and statistically significant effects on voter participation.
Additional secondary schooling significantly increases the frequency of
newspaper readership as well as the degree of support for controversial
free speech.
Milligan et al. (2004) also investigate whether education provides
social benefits through enhanced civic participation. The authors focus
on the USA and the UK and test whether civic participation as meas-
ured by the probability of voting is affected by the degree of educational
attainment. The data for the USA come from National Election Studies
(NES) spanning the period 1948–2000 and are combined with demo-
graphic information on the respondent and a wide variety of questions
about political affiliations, voting behavior, knowledge, and attitudes.
For the UK, the data come from the British Election Studies (BES),
which collect information pertaining to general elections, and from the
Eurobarometer survey assembled by the European Commission and
designed to track opinions and attitudes among European citizens.
The empirical analysis uses responses to the question “Did you vote
in the last elections?” as the dependent variable. The explanatory varia-
ble of interest is a dummy equal to 1 if the respondent has a high school
education or more and zero otherwise. Control variables include demo-
graphic information on the respondent and information about her/his
political affiliations, voting behavior, knowledge, and attitudes.
The analysis reveals a strong and robust relationship between educa-
tion and voting in the USA, but not in the UK. However, education
increases citizens’ attention to public affairs and politics in both coun-
tries. More educated citizens appear to have more information on can-
didates and campaigns. Overall, these results lend support to the notion
that education can have social externalities through the production of a
better polity.
Persson (2014) argues that most of the results regarding the rela-
tionship between education and social capital might reveal correlation
instead of causality. The idea is that education is not a direct cause of
political participation but only a proxy for the real cause. The rela-
tionship occurs due to self-selection, i.e., the kind of people who seek
higher education are also more likely to participate in politics regardless
15  Civil Society and the Role of Education    
321

of their level of education. The author uses matching techniques to


assess whether there is a direct causal effect of education on political
participation. The data employed concern everyone born during one
week in April 1970 in the UK and include a rich set of variables meas-
uring various factors pertaining to childhood and adolescence, intellec-
tual ability, and family socioeconomic status.
The dependent variables reflect the political participation profile of
the individual and include voting in the 2001 election, signing a peti-
tion, contacting a member of parliament (MP), attending a public
meeting or rally, or participating in a demonstration during the last
12 months. Each of these participation indicators is analyzed separately
and controlled for the effects of intellectual ability and family socioec-
onomic status, among other things. Overall, the results do not support
the hypothesis that education has a significant effect on political partic-
ipation, which is similar to the findings by Milligan et al. (2004) for the
UK.
Accordingly, both studies seem to suggest that the education effect is
context dependent and that direct causal effects could develop in some
contexts but not in others. As noted by Persson 2014, it is not clear that
applying his approach to the USA would have contradicted the results
of Milligan et al. (2004), that is, education does have an effect on polit-
ical participation. Britain is a society in which the link between social
class origin and adult position is strong. As a result, while the absence of
an impact of education on participation in the UK seems to be robust,
it cannot be generalized to other contexts.
Egerton (2002) mitigates the above findings about the missing link
between education and social capital in the UK by showing that the
effect depends on the type of civic participation and social group under
consideration. The paper examines the effects of tertiary education
on the social and civic engagement of young people, using the British
Household Panel Study (BHPS), which collects data annually on mem-
berships and activity in a variety of organizations such as political par-
ties, trade unions, environmental groups, school associations, residents’
groups, religious groups, and sports clubs. The youth in question were
observed in the year before entering tertiary education (age 17/18) and
on completing their tertiary education (age 22/23). Membership and
322    
K. Sekkat

activity are explored using 1991 data and coded such that 0 means no
membership, 1 means membership, and 2 means active membership.
These scores are used as dependent variables in a logistic regression
which explains the likelihood of activity in a given organization at age
22 or at the end of tertiary education by previous activity and educa-
tion level. Five levels of post-secondary education are considered: grad-
uate, sub-degree, A-level, NVQ3, and below NVQ3.1 Distinction is
made according to gender, social class of origin, and father’s occupation.
Social classes include manual workers, self-employed, clerical, profes-
sional, ancillary, and managerial.
The results are the following. No important differences are found in
the participation rate in sports and social clubs before and after tertiary
education. However, differences exist before and after tertiary education
regarding participation in civic and religious organizations. Higher edu-
cation seems to have an effect on the probability of involvement in civic
organizations. The children of professionals are more likely to be active
in civic organizations compared with the children of manual workers,
while the same disparity does not exist for the children of managers
compared with the children of manual workers.
The analysis by Brand (2010) offers a similar mitigation regarding
the effect of education on social capital, but focuses on the USA. The
focal point of the analysis is whether schooling succeeds in promot-
ing civic participation among underprivileged groups. To this end, the
effects of college on civic participation are allowed to differ between
disadvantaged and advantaged participants. The data are drawn from
the US National Longitudinal Survey of Youth (NLSY) 1979. Besides
demographic and school achievement information, the NLSY gives
information about civic participation. The empirical exercise consists in
estimating the effects of college completion on civic participation.
Civic participation is measured through two dichotomous indicators
which are constructed from the responses to the following two ques-
tions: (i) “Have you performed any unpaid volunteer work in the past

1Level 3 National Vocational Qualification (NVQ3): competence-based vocational qualification

equivalent to an A-level school-leaving qualification.


15  Civil Society and the Role of Education    
323

12 months for civic community or youth groups?” and (ii) “Have you
performed any unpaid volunteer work in the past 12 months for chari-
table organizations or social welfare groups?”
Civic participation is allowed to differ between disadvantaged and
advantaged participants. The separation between the two groups is
based on the likelihood of college completion, which is assumed to
depend on gender, race, ethnicity, family background, friends’ plans,
and parents’ encouragement.
The analysis confirms the results of the literature on the determinants
of college completion. Black and Hispanic students are significantly less
likely to complete college. High socioeconomic background, cognitive
ability, academic achievement in high school, friends’ plans for college,
and parents’ encouragement to attend college also strongly predict col-
lege completion. Regarding civic participation, college completion has
the largest impact on volunteering among disadvantaged individuals.
The college effect generally decreases as the likelihood of college com-
pletion increases.
Charron and Rothstein (2016) examine the impact of education and
institutional quality on trust in individuals. The tests are based on the
results of a survey conducted by the authors in 2010 and in 2013 in
24 European countries. The 2010 survey consisted of about 34,000 cit-
izen interviews, while the 2013 survey covered over 85,000 individuals.
The respondents were sampled by regions in European countries, which
made it possible to test for sub-national variations within countries. The
surveys focused on citizen perceptions and experiences regarding the
quality of their regional institutions and also included questions about
social trust.
The measure of generalized trust is the dependent variable and is
based on questions similar to those mentioned above. It is coded as a
dummy taking the value 1 if the answer to the question is “Most peo-
ple can be trusted” and 0 if the answer is “Can’t be too careful”. The
two independent variables of interest are education and institutional
quality. Education consists of four ordered categories: less than sec-
ondary, secondary degree, tertiary degree (university or college), and
post-tertiary degree (such as an MA, Ph.D., or JD). Institutional quality
indicators include “control of corruption”, “government effectiveness”,
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K. Sekkat

“rule of law”, and “voice and accountability” taken from the World
Governance Indicators. The regression also includes an interaction
between education and institutional quality. Control variables are age,
income, number of working females, population, and ethnolinguistic
fractionalization.
The findings show that the effect of education on generalized trust
is highly conditional on country levels of institutional quality. At low
levels of institutional quality, the results show no statistical differences
in the impact across education levels. The difference in the impact on
trust across various levels of education increases significantly with bet-
ter institutional quality. The conditional effect of institutional quality is
consistent at both the regional and the country levels but it is noticeably
stronger at the country level at all levels of education. The empirical evi-
dence is highly robust to alternative model specifications, data sources,
and the removal of outliers.
Huang et al. (2009) conduct a meta-analysis of 142 studies on social
trust and 268 on social participation with the objective of assessing the
effect of education on social trust and social participation. The results
support the positive impact of education on the generation of social
capital. The mean effect of the studies is 0.046 for social trust and 0.055
for social participation per year of schooling. Thus, one standard devia-
tion of years of schooling accounts for 12–17% of the standard devia-
tion in social trust and social participation.

2.3 Education and Corruption

Uslaner and Rothstein (2016) offer a historical perspective on the rela-


tionship between education and corruption. Specifically, the paper
examines the link between levels of mass education in 1870 and cor-
ruption levels in 2010 for 78 countries. Two interesting observations are
behind this exercise. First, the persistence of high levels of corruption
in many countries suggests that corruption has very old roots. Second,
while the mean education level across countries increased by sixfold
between 1870 and 2010, the ranking of countries remained almost
unchanged. Countries with the highest levels of education at the start of
15  Civil Society and the Role of Education    
325

the period were also those at the top 140 years later. Although countries
can “catch up”, the weight of history seems heavy.
Using an instrumental variable estimation method, the 2010 level of
corruption drawn from TI is explained in terms of levels of education in
1870, the mean school year change between 1870 and 2010, GDP per
capita in 2000, the Polity IV Democracy Index, a Gini index for 2004,
and the Press Freedom Index for 2002.
The results show a strong correlation between the mean number of
years of schooling in 1870 and the level of corruption in 2010. Moving
from the lowest mean years of education (0.01 for four African nations)
to the highest (6.07 in Switzerland) increases the CPI by 7.0 points on
a ten-point scale. The effect of the level of education in 1870 explains
the level of corruption in 2010 much more than GDP per capita.
Combining the results of various regressions, the authors also find that
press freedom can help combat corruption, but the power of the press
depends upon a literate public.
Dutta and Mukherjee (2016) examine the combined effect of edu-
cation attainment and durable democratic systems on corruption using
cross-national panel data for the period 1986–2009. The data cover 92
countries and are averaged over five-year periods. The dependent var-
iable, corruption, is taken from the ICRG. The independent variables
of interest are durability of a democratic system and measures of edu-
cational attainment. Durability is computed based on the Polity IV
database. Educational attainment comes from the World Development
Indicators database and reflects the percentage of people aged 15 and
above who can understand, read, and write a short, simple statement
on their everyday life. Control variables also come from the World
Development Indicators and include GDP per capita, the degree of
trade openness, Internet users (per 200 people), mobile users (per 100
people), life expectancy rate, mortality rates, and poverty. The potential
endogeneity concerns are addressed using system GMM.
The findings indicate that a stable democratic regime and an edu-
cated populace act as complements in combating corruption. Literacy
favors corruption at low levels of durability but as a democracy grows
more durable, literacy reduces corruption. In contrast, the impact of
326    
K. Sekkat

durability alone is nonsignificant irrespective of the levels of literacy,


which contradicts Treisman (2000).
Cheunga and Chan (2008) examine the interplay between educa-
tion and national culture in reducing corruption. As discussed above,
by giving citizens the ability to learn, comment, and organize, education
can help fight corruption. Cultural values which develop social trust
and encourage coordination and cooperation for mutual benefit can be
efficient tools against corruption. The two factors are not independent,
however. Education has an important influence on values and beliefs,
teaching students about what is legal and illegal for example. It thus
gives students the knowledge and experience to assume ethical responsi-
bilities and maintain value correctness.
To examine this nexus, the study explains the TI corruption index in
56 countries for the years 2002 and 2005 in terms of enrolment in ter-
tiary education and Hofstede’s four cultural indexes. The latter include
the extent to which a society accepts human inequality, whether the
individual is the main focus of people’s life, the extent to which a soci-
ety treats men better than women, and finally, tolerance for uncertainty
and ambiguity within a society. As the control variables, GDP per cap-
ita and political rights are included.
From the regression, the coefficient of GDP per capita and enrolment
in tertiary education are highly significant and have positive slopes. This
means that these variables reduce corruption in the two time periods
2002 and 2005. Moreover, they predict around 80% of the total vari-
ance of the CPI scores. In comparison, cultural variables explain only
a modest portion of the CPI scores. However, cultural variables appear
as strong determinants of GDP per capita and enrolment in tertiary
education in the two time periods. Hence, cultural dimension varia-
bles affect the CPI scores indirectly. In sum, policies to fight corruption
should also incorporate instruments that encourage higher enrolment in
tertiary education and economic development.
Glaeser and Saks (2006), focusing on US states, examine whether
voters with more education and income are more willing and able to
monitor public employees and to take action when these employees vio-
late the law. Corruption data come from the Justice Department and
concern the number of federal, state, and local public officials convicted
15  Civil Society and the Role of Education    
327

of corruption between 1976 and 2002. Dividing these numbers by


average state population gives the state conviction rate per capita,
which is explained in terms of education measured as the share of the
population aged 25 and up with four or more years of college educa-
tion. Control variables include state population, the share of urbanized
population, and the fraction of workers employed in government. An
instrumental variable estimation method is used to deal with potential
endogeneity.
The results show that the impact of education on the rate of cor-
ruption convictions is strong and much more robust than the impact
of income. As the share of highly educated people increases by one
standard deviation (2.2 percentage points), the corruption conviction
rate decreases by about half of a standard deviation (0.064 percentage
points).
While recognizing education as a tool in the fight against corrup-
tion, Asongu and Nwachukwu (2016) investigate whether the move
from one level of education to the next entails an additional reduction
in corruption. The paper also examines whether there is a synergy effect
in the sense that the effect of the combined three levels of duration is
greater than the sum of the impacts from moving from one level to
another. The study uses a panel of 53 African countries for the period
1996–2010. Corruption is measured on the basis of the TI and World
Bank (WB) indexes. The explanatory variables of interest are primary,
secondary, and tertiary school enrolment. To get the synergy indicator,
a principal component analysis is employed over the three levels of edu-
cation. Control variables include GDP growth, inflation, and openness
to trade. To deal with potential endogeneity, the system GMM estima-
tion method is adopted. The main policy implications derived from the
study are as follows: (i) Education is a powerful tool in the fight against
corruption; (ii) there is evidence of an incremental effect in the transi-
tion from secondary to tertiary education; and (iii) there is evidence of
a “synergy effect” because the impact of combining the three levels of
school is greater than the sum of the individual effects of the three edu-
cational levels.
The various mechanisms discussed so far have shown education to
have positive effects in curbing corruption. One interpretation of this
328    
K. Sekkat

effect is that education makes citizens less tolerant of corrupt acts. This
is the question addressed by Truex (2011) on the basis of a survey of
Kathmandu residents. The survey was developed to isolate attitudi-
nal differences across seven dimensions of corruption. It was adminis-
tered in Kathmandu in June 2009 to 853 Nepali citizens. Participants
were asked a series of 13 questions that contained short descriptions of
behaviors. For each question, respondents gave their opinion about the
behavior on a scale of one to five, with one being “very acceptable” and
five being “very unacceptable”. Lower scores indicate greater acceptance
of the behavior.
A preliminary analysis of the survey results shows that, in general,
behavior other than large-scale bribery (grand corruption) proved more
socially acceptable. There is also substantial variance among Kathmandu
residents in attitudes toward different types of corrupt behavior.
Respondents are more tolerant of small-scale corruption (petty corrup-
tion), especially when citizens are seeking access to services that they
are entitled to anyway. Favoritism also emerges as more acceptable,
although attitudes depend on the specific context. The responses suggest
that respondents make a distinction between public and private behav-
ior. In contrast, they make no significant distinctions between gift and
cash bribes, briber and recipient, and nepotism involving politicians
and bureaucrats.
To examine the reason for the differences in tolerance toward corrup-
tion, an OLS regression is performed using the respondent’s response to
the questions as dependent variable and education as the explanatory
variable of interest. Education is coded into five categories pertaining to
respondents’ highest level of completed schooling: no formal schooling,
elementary school, middle school, high school, and university. Control
variables include a number of personal variables such as gender, age, and
region of origin.
In all specifications, respondents with higher levels of education show
less tolerance. This attitude is continuous across levels of education:
University graduates are less tolerant than high school graduates, high
school graduates are less tolerant than middle school graduates, and
so forth. The results are robust to the inclusion of the personal covari-
ates. Overall, there is evidence that education does indeed have positive
15  Civil Society and the Role of Education    
329

benefits in terms of reducing tolerance of corrupt behavior, and that


these effects continue at higher levels of schooling.
Since corruption is a form of cheating, Magnus et al. (2002) further
highlight the possible impact of education on corruption by examining
student opinions about cheating in Russia, the Netherlands, Israel, and
the USA. The basis of the study is a survey conducted in 1997 in the
four countries at three different levels of education. The sample con-
tained 885 students from the four countries: 92 high school students,
554 university undergraduates, and 239 postgraduates. Out of the
885 students, 506 were from Russia, 112 from the USA, 247 from the
Netherlands, and 20 from Israel.
Each student was asked to consider the following situation: Student
A cheats while taking an exam, C reports to the departmental office that
A copied the answers from student B with the consent of student B.
Each respondent has to give his/her opinion about each of A, B, and C
on a five-point scale: strongly negative (–2), negative (–1), neutral (0),
positive (+1), or strongly positive (+2).
The authors applied an ordered-response model to identify differ-
ences in attitudes toward cheating across countries and education levels.
The test showed that students of the same educational level in different
countries had very different attitudes toward A, B, and C. However, stu-
dents within the same country had the same attitude toward A and B
irrespective of their educational level. Students within the same country
did not have the same attitude toward A and C.
To directly link the analysis to corruption issues, the authors use the
responses to the interviews to construct a synthetic indicator by country
and education level of tolerance to cheating. The index is a weighted
average of the attitude toward A, B, and C and varies between 0 and 10.
The higher the index, the lower the tolerance of cheating. Tests show
that the index explains most of the variation in the data. Computing
the correlation between TI’s CPI and the synthetic index of tolerance of
cheating shows very high correlation.
From disapproving of corrupt acts to reporting them takes addi-
tional courage and greater intolerance of corruption. Botero et al.
(2013) explore whether educated people are more likely to complain
about and report officials’ misconduct. They also investigate whether
330    
K. Sekkat

such complaints and reports increase as the education level in a coun-


try rises. The ultimate impact on corruption comes from the fact that
a public official choosing to break the rules must trade off the risk of
being disciplined, which increases with the number of complaining
citizens, against the benefits of misconduct. Of course, the effective-
ness of this decentralized process also depends on the prevailing polit-
ical arrangements, such as democracy or dictatorship, and the quality
of institutions. Accordingly, control for these factors should be carefully
implemented.
The analysis is based on cross-sectional data from the World Justice
Project (WJP) surveys conducted in 88 countries in 2009, 2011, and
2012 and comprising 1000 respondents drawn from the three largest
cities in each country. The questions relevant to the analysis are worded
as follows: (i) “During the last year, did you submit any complaint
about the services provided by the different government agencies in
your country?”; (ii) “In the last 3 years, have you or someone in your
household, been subjected to physical abuse by the police or the mili-
tary?”; and (iii) “Did you or anyone else report the crime to the police
or other authority?” The WJP data also provide information on educa-
tion, income, trust, gender, and asset ownership. These make it possi-
ble to construct two indicators of the education level: college and high/
middle school. WJP data are supplemented by information from the
International Crime Victims Survey (ICVS) and TI’s Global Corruption
Barometer.
The econometric analysis examines the relationship between educa-
tion and the reporting of officials’ misconduct or crime. The depend-
ent variable is a dummy equal to zero or one depending on whether
reporting occurred. The main findings confirm that, within countries,
more educated people complain more, both about officials’ misconduct
and crime in general. This relationship is stronger in developing coun-
tries. A higher country-average assessment that a policeman violating
the law will be punished is associated with higher probability of mak-
ing a complaint. Interestingly, this relationship is particularly strong
in autocracies, suggesting that voting might not be the only impor-
tant tool against corruption. Finally, these results seem to be linked to
15  Civil Society and the Role of Education    
331

education per se and not to other factors correlated with education such
as income, trust, social status, or gender.
In the chapter on justice, we discussed the issue of partisan bias,
through which voters continue to elect an incumbent convicted of cor-
ruption for partisan reasons (Gordon 2009). Winters and Weitz-Shapiro
(2014) examine the effect of education on such bias. The basis of the
analysis is a survey conducted in 2010 in Brazil with 2000 respond-
ents. The survey presented respondents with variants of the following
scenario:

Imagine a person named Gabriel, who is a person like you, living in a


neighborhood like yours, but in a different city in Brazil. The mayor of
Gabriel’s city is running for reelection in October. He is a member of the
party X. In Gabriel’s city, it is well known that the mayor never takes
bribes when giving out government contracts. The mayor has completed
few public works projects during his term in office. In this city, the elec-
tion for mayor is expected to be very close.

The variants of the scenario consist in replacing the words in bold and
italics by one or more of the following: The party Y, frequently takes
bribes and many public works projects. The variants are assigned to
respondents randomly. Some respondents learn that it is well known
that the mayor takes bribes while others learn that it is well known that
the mayor does not take bribes. The experimental scenario was followed
immediately by a question that asked the respondent the likelihood
(on a four-point scale) that Gabriel would vote for the named mayor.
Respondents were also asked to select the party to which they felt clos-
est from a list of 27 parties, as well as their education level.
To examine how corruption information affects partisanship, the
authors examine differences in the distribution of expressed partisan
identities across corrupt and non-corrupt conditions. The randomized
design makes it possible to attribute changes in this distribution to the
corruption effect. The results show that among less educated respond-
ents, the majority of people did not update their partisan identification
after becoming aware of corruption in conjunction with a particu-
lar party. Among the highly educated group, sympathy for the party
332    
K. Sekkat

associated with corruption decreased while sympathy for other parties


increased. Specifically, the share of highly educated respondents who
sympathized with the “corrupt” party dropped from 25 to 20%. In
contrast, the share of the same set of respondents declaring a partisan
identity with a party other than the “corrupt” one increased by 15 per-
centage points (from 32 to 47%).

3 Conclusion
Education plays a major role in enhancing the fight against corruption
in many respects. First, the use of ICT in administrative and politi-
cal processes is obviously very inaccessible to the illiterate population.
Second, education contributes to building a population’s social cap-
ital, broadly defined as a set of norms, organizations, and networks
which creates hostility toward corruption. Third, education favors civic
engagement and encourages people to go beyond disapproving of cor-
rupt acts to reporting and exposing them.
Observations show that countries that are more endowed with social
capital are less corrupt. More interestingly, countries where social cap-
ital has been depleted become more corrupt. The level of corruption
in a country is also found to be negatively associated with a society’s
degree of civic engagement. Moreover, as the number of years of com-
pleted schooling increases, civic engagement intensifies. Additional years
of schooling have large and statistically significant effects on the fre-
quency of newspaper readership, the degree of support for controversial
free speech and voter participation. Furthermore, educated citizens have
more information on candidates and campaigns.
Historical investigations over a very long period (1870–2010) con-
firm the above findings. The results show a strong negative correlation
between the average number of years of schooling in a country in 1870
and the level of corruption in 2010. Moreover, a stable democratic
regime and an educated population act as complements in combating
corruption. Even within countries, more educated people are found to
complain more, both about officials’ misconduct and crime in general.
15  Civil Society and the Role of Education    
333

In other words, more educated persons are not afraid to complain. This
relationship is stronger in developing countries. In sum, anti-corruption
policies should incorporate instruments that encourage higher enrol-
ment in tertiary education.

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Conclusion

Corruption is old, widespread, and multifaceted. The phenome-


non can be traced back to before 300 B.C. Corruption is prevalent
in diverse fields such as health, education, justice, sports, unions, and
the media. Corruption ranges from transfers of relatively small pay-
ments to low-ranking officials (“petty” corruption) to large payments
to high-ranking civil servants or politicians (“grand” corruption). It also
involves nepotism, favoritism, and theft of state assets.
The large majority of the empirical evidence shows that corruption
imposes important costs on society, although some economists and
political scientists argue that it “greases the wheels” of business in some
circumstances. The amount and costs of corruption are unknown since
the phenomenon is, by definition, secret. Available assessments suggest,
however, that the total amount of corruption is more than US$1 tril-
lion per year. This does not include the negative effects of corruption
on investment, human capital, and productivity, each of which reduces
GDP by almost 5%. Corruption also has non-economic costs in terms
of quality of infrastructure, trust in the state and other citizens, political
participation, and regime legitimacy.
Corruption has international ramifications. Very often, corrupt pol-
iticians, rulers, or high-ranking civil servants put the proceeds of their
© The Editor(s) (if applicable) and The Author(s) 2018 337
K. Sekkat, Is Corruption Curable?, https://doi.org/10.1007/978-3-319-98518-3
338    
Conclusion

illegal activities in specific foreign countries, with the result that corrup-
tion is increasingly associated with the financing of international terror-
ism and narcotics traffic. Accordingly, the remedy for corruption needs
to be transnational. The USA was the first to adopt such transnational
treatment in 1977. Its Foreign Corrupt Practices Act (FCPA) punishes
corrupt acts outside the USA by any firm linked to the US economy.
Since then, similar initiatives have been developed by, for instance, the
UN, the OECD, and the WTO. The outcomes of FCPA enforcement
are highly encouraging.
Anti-corruption strategies adopted around the world can be split into
two complementary categories. One focuses on institutional reforms
while the other emphasizes the role of civil society. Starting with the top
institutional level, the fact that those autocratic regimes are, in general,
more corrupt than democracies suggest that moving toward democracy
is a prerequisite for the fight against corruption. However, corruption
exists in democracies as well for instance because of the need to fund
electoral campaigns. Accordingly, complementary mechanisms such as
punishments, rewards, and challenges to officials’ decision-making pow-
ers have been suggested as ways to keep officials away from corruption.
However, implementing such mechanisms is not an easy task.
Punishment poses the question of whether the briber, the recipient, or
both should be punished. This question is fueling a passionate debate
in India, which is both the biggest democracy and one of the most cor-
rupt countries in the world. Punishment also entails costs relating to the
collection of evidence, potential conviction of defendants, and enforce-
ment of judgements. Many developing countries lack the financial and
human resources to accomplish such complex tasks. Furthermore, the
justice system may be itself corrupt or under influence. As an alterna-
tive, many countries have set up, with the help of donors, independ-
ent Anti-Corruption Agencies (ACAs). Except in Singapore and Hong
Kong, ACAs have mostly been failures owing to ineffective independ-
ence, insufficient resources and poor monitoring.
Rewards generally consist in increasing salaries. In all the countries
that adopted this solution, corruption did not decrease because the
problem of monitoring remained unresolved. Very often, officials see
Conclusion    
339

the increase in wages as top-up revenue instead of as a substitute for


corruption.
The “monopoly” power of civil servants can be broken up by mak-
ing specific tasks accomplishable by different administrations, rotating
employees in charge of certain tasks or transferring some tasks to the
private sector. With the exception of approaches based on having differ-
ent administrations deliver a public service, these solutions have proven
very costly in many cases because agents had to adapt to new routines,
cases, and rules. However, when private firms engaged in service deliv-
ery are left to themselves, they start promoting corruption instead of
curbing it. Overall, the evidence points to inadequate monitoring and
the risk of capture by governments and donors as the main reasons for
such lack of success.
In line with most of the recent researches, the above discussion shows
that whatever anti-corruption strategy is adopted, monitoring and con-
trol are crucial. This puts civil society on the front line. Because even an
“honest” ruler cannot control the actions of each civil servant, collec-
tive monitoring by civil society is more effective. Moreover, corruption
is increasingly systemic, which explains the failure of many anti-corrup-
tion projects. It is almost impossible for a single official to remain hon-
est without running the risk of encountering the hostility of colleagues
or superiors, being ostracized or even losing his or her life.
For collective monitoring and control to be successful, monitors
should be able to access, process, and efficiently use the relevant infor-
mation. Observations show that a strong civil society has a substantial
anti-corruption impact only in countries with high pressfreedom. At
the same time, a strong civil society can powerfully complement the
media through ICT-mediated social fora, which raise the pressure for
information disclosure and accountability. However, the effectiveness of
these mechanisms depends on the education level of citizens. Education
is commonly associated with the acquisition of knowledge, which is a
necessary step toward citizens’ efficient use of the information provided
by the media. In addition, education equips citizens with tools for effec-
tive participation in democracy. Finally, education fosters citizens’ adop-
tion of civic values.
340    
Conclusion

In sum, the fight against corruption, although not easy, is not a


lost battle. Some countries, including those in Scandinavia and North
America, were among the most corrupt in the world two centuries ago,
but are now cited among the “cleanest”. More recently, the anti-corrup-
tion strategies of Singapore and Hong Kong have been cited as exam-
ples of great success. The historical record of these countries confirms
the crucial role played by collective action, information, and education.
Index

A Alert xiv
Absenteeism 28, 248, 317 Allegation 54, 270, 286
Accountability 21, 28, 44, 45, 74, Amendment 265
75, 82, 86, 98, 99, 141, 142, America 26, 144, 168, 190, 256–
166, 167, 173, 176, 179, 189, 258, 286
191, 193–196, 199, 200, 208, Angola 12
213, 214, 218, 219, 228, 231, Anonymity 226
234, 237, 238, 241, 245, 250, Anti-bribery 81, 266, 270, 272, 273
284, 289, 291, 293, 294, 296, Anti-corruption 47, 64, 78, 93, 111,
305, 313, 324, 339 112, 165, 172, 173, 200, 223,
Accreditation 29 231–233, 235–238, 247, 253,
Adjournment 212 261, 268–271, 273, 276, 290,
Advertisements 24 301, 302, 304, 306, 308, 333,
Africa 21, 22, 30, 58, 85, 93, 133, 338–340
136, 144, 190, 246, 253, 254, Anti-Corruption Agencies (ACA)
256, 257, 259 xvi, 232, 235–237
African Union (AU) 269 Appeal xiv, 60, 107, 211
Afrobarometer 317 Appoint 75, 191
Aid 12, 40–42, 76, 130, 212, 259, Aquifers 31
276, 312
Albania xvi

© The Editor(s) (if applicable) and The Author(s) 2018 341


K. Sekkat, Is Corruption Curable?, https://doi.org/10.1007/978-3-319-98518-3
342    
Index

Argentina xvi, 17, 23, 93, 135, 214, Brazil xvi, 135, 246, 269, 284, 293,
232, 235, 251, 259–261, 269, 331
270 Breach 10, 183
Asia 31, 45, 94, 133, 168, 190 Break 19, 120, 236, 252, 330
Assassinations 217, 218 Bribe 8, 15, 17, 20, 21, 25, 31,
Asset 21, 144, 235, 268, 299, 300, 42, 55, 72, 73, 79, 81, 93,
313, 330 97–101, 103, 104, 110, 111,
Asset-recovery 270 113–115, 119, 125–127, 137,
Asymmetric 205, 224–228 147–149, 151, 154, 167,
Attorney 215, 250 172, 197, 198, 200, 205, 211,
Attorney-General 215, 237, 250 221–223, 225–228, 242, 243,
Audit 65, 234, 250, 251, 284, 285, 247, 252–255, 266, 270, 274,
293, 294 275
Australia xvi, 16, 93, 103, 104, 136, Bribe Payers Index (BPI) 40, 42, 275
171, 235, 256 Briber 22, 211, 220, 221, 224–
Austria xvi, 109 228, 242, 243, 255, 256,
Authoritarian 170 328, 338
Autonomous Revenue Authorities Bribery 6, 13, 32, 43, 48, 75, 81, 93,
(ARA) 258 94, 99, 100, 121, 126, 147,
Autonomy 166, 191, 194, 241, 148, 198, 199, 221, 222, 224,
257–259 227, 228, 232, 243, 256, 262,
265–267, 269, 270, 272–276,
304, 328
B Britain 26, 73, 232, 321
Badmouthing 286 British Election Studies (BES) 320
Bangladesh 20, 49, 93, 130, 270 British Household Panel Study
Bankruptcy 15, 285 (BHPS) 321
Banks 151, 218, 286 Buenos Aires 13, 251
Barr 93, 249, 250 Bulgaria xvi, 269, 302
Barriers-to-entry 187 Bureaucracy 5, 13, 16, 44, 79, 82,
Bengali 292 101, 119, 125, 126, 137, 138,
Benin 56, 57, 133 149, 153, 155, 222, 223, 244,
Berlin 42 245, 288, 302
Berlusconi, Silvio 22 Bureaucrat 16, 17, 149, 242, 243,
Bhutto, Benazir 11, 14 252
Bicameralism 75, 181, 187 Burkina Faso 56, 57, 247
Bolivia 256, 258, 259 Bush 216, 217
Bonn 225
Index    
343

Business Environment and Citizen 20, 83, 103, 104, 200,


Enterprise Performance Survey 216, 226–228, 243, 252,
(BEEPS) 40, 45, 138 291, 323
City 7, 13, 15, 31, 95, 111, 134,
148, 191, 233, 243, 251, 301,
C 331
Cambodia 12, 28, 29, 32 Civic 76, 199, 233, 306–308,
Canada 16, 31, 93, 140, 274 312–316, 319–323, 332,
Candidate 15, 182–185, 307 339
Cape Verde (CV) 85, 86 Civil xv, 3, 42, 64, 65, 67, 72, 73,
Capture 6, 9, 10, 22, 45, 48, 75, 77, 79, 100, 110, 113, 120, 125–
134, 169, 189, 191, 199, 203, 127, 145, 150, 151, 155, 169,
204, 214, 219, 235, 255, 295, 174, 187, 192, 213, 223, 231,
339 233, 242, 243, 245, 247, 275,
Career-concern 187 284, 286, 287, 294, 300–302,
Cargo 253, 254 337–339
Catholic 96, 101 Civil Society Organization (CSO)
Causality 77, 80, 95, 96, 108, 130, 294
174, 196, 303, 304, 317, 320 Clean Report of Finding (CRF) 257
Cell 50 Clientelism 214
Censoring 300 Clinton 216, 217
Centralization 114, 193, 199 Closed-list 181, 182, 184–187
Chad 29 Coercive 204, 220
Chancellor 10, 15, 183, 184 Colgate-Palmolive 270
Charge 14, 28, 30, 42, 74, 111, 112, Collusion 15, 234, 243, 294
167, 179, 209, 232, 244, 253, Colombia xvi, 27, 135, 259, 261,
258, 262, 266, 295, 339 262
Cheating 27, 59, 98, 249, 306, 329 Colonial 71, 73, 81, 273, 288
Check 21, 80, 81, 98, 225, 234, 314 Commitment 128, 232, 258, 259
Chemicals 77, 204 Commonwealth of Independent
Chicago 31 States (CIS) 24, 138
Chile 135, 221, 269 Communist 7, 22, 110, 139, 170,
China xvi, 2, 19, 21, 25, 29, 31, 93, 246
110, 190, 225, 227, 242, 302, Competition 2, 7, 14, 19, 31, 45,
307 52, 53, 71, 72, 74, 75, 77,
Chirac, Jacques 183 78, 88, 89, 107–110, 115,
Church 319 122, 179, 181, 184–187, 189,
191–193, 196, 199, 200, 204,
344    
Index

207, 208, 211, 243, 252, 253, 136, 143, 151–154, 165–168,
269, 276, 293 170, 171, 173, 174, 176,
Composite 43, 47, 81, 145 179–182, 184, 185, 187, 190,
Computer 212 194, 195, 207–209, 211, 212,
Conduct 41, 74, 267, 268, 273, 284, 214, 215, 220–227, 242, 244,
289, 304, 307, 318, 324 245, 250, 254–256, 267, 269,
Confiscating 19 270, 272–275, 283–286, 294,
Conflict 44, 175, 211 300, 305, 314, 316, 317, 328,
Congress 14, 18, 265, 276, 294 329, 331, 332, 337, 338, 340
Constituency 166 Corruption xiii–xvi, 5–32, 39–68,
Contaminate 31 71–115, 119–155, 165–176,
Control xiv, 14, 17, 23, 41, 45, 179–187, 189–200, 203–209,
56, 66, 67, 74, 78, 79, 211–220, 222–228, 231–234,
83–87, 89, 90, 95, 97–105, 236–238, 241–247, 249–257,
107–109, 111, 114, 129– 260, 262, 265–269, 271,
133, 137–143, 145–148, 273–276, 283–291, 293, 294,
150–153, 170–175, 184– 296, 299–306, 308, 311, 312,
186, 192, 194–196, 198, 314–319, 323–332, 337–340
203, 207–209, 218, 219, Corruption Perceptions Index (CPI)
232, 233, 237, 244–246, 2, 40–43, 49–51, 56, 61, 62,
251, 254, 261, 272–274, 64, 66, 86, 89, 92, 93, 95,
286–290, 293, 295, 296, 100–102, 105, 107, 108, 132,
302, 303, 307, 316–320, 133, 135, 136, 139, 141–146,
323–328, 330, 339 149, 150, 152, 169, 174, 175,
Control of Corruption Index (CCI) 184, 185, 187, 206, 218, 236,
45, 56–58, 62, 64, 80, 90, 95, 274, 287, 302–305, 315, 316,
96, 142, 170, 173, 175, 184, 318, 325, 326, 329
236, 302 Corrupt Practices Investigation
Conviction 242, 327, 338 Bureau (CPIB) 233
Corporation 22, 40, 41, 108, 111, Cost-effective 260
266 Côte d’Ivoire 56
Corridor 253, 254 Counterfeit 28, 29
Corrupt xiv, 2, 6–8, 10, 12, 15, 20, Court 15, 20, 26, 91, 112, 113, 120,
26, 28, 32, 41, 49–51, 54, 58, 212–215, 228, 273, 284
60–65, 68, 71–76, 78–81, 84, Crackdown 250
86, 88–91, 93, 95–97, 99, Credential 26
103, 105–107, 112–115, 120, Crime 6, 21, 40, 43, 45, 55, 147,
123, 124, 126–128, 131, 134, 148, 221, 267, 330, 332
Index    
345

Criminalize 267, 269 209, 274, 275, 287–290, 311,


Croatian 7 314, 325, 330, 338, 339
Culture 72, 76, 91, 94, 104–106, Democrats 216, 217
115, 167, 174, 175, 225, 238, Denmark 7
274, 315, 326 Denunciation 284
Current Population Survey (CPS) Department of Justice (DoJ) 41,
303 227, 266, 267, 290
Custom 32, 65, 85, 111, 243, 252, Detect 59, 84
254, 257, 258 Deter 132, 175, 224, 227, 228
Diploma 26, 27, 219
Discharge 77, 204
D Disclosure 293, 313, 339
Dean 10 Discrepancies 54, 260
Death 29, 30, 148 Discrepancy Report (DR) 257
Decentralization xv, 72, 74, 75, 80, Disease xiii
81, 88, 172, 183, 189–192, Diversion 2, 32, 128, 255, 293
194–200, 211 Donation 10, 16, 25, 26
de facto 217–220, 268 Donor 10, 237, 238
Defamation 285 Drive 149, 182, 184, 186, 226
Deferred Prosecution Agreement Drug 28, 29, 252
(DPA) 266, 267 Dubai 11
Degree 14, 16, 17, 26, 39, 43, 60, Duty 222, 260–262
67, 68, 74, 76, 80, 84, 87, 89, Duvalier, J.C. 270
90, 102, 105, 108, 132, 142,
152, 165, 167, 170–172, 175,
176, 183, 184, 186, 190, 192, E
194–196, 200, 203, 205, 214, Earthquake 14, 169
217–220, 245, 246, 249, 259, Economist Intelligence Unit (EIU)
287–290, 305, 312, 316, 320, 43
322, 323, 325, 332 Ecuador xvi, 214, 235
de jure 217, 218, 220 Educate 233
Delhi 17, 103, 148 Education xiv, xv, 5, 13, 14, 24–29,
Democracy xiv, 14, 15, 24, 47, 59, 85–87, 91, 97, 98, 101,
56–58, 67, 72, 74, 75, 80–82, 104, 119, 122, 124, 129, 130,
88–90, 102, 103, 115, 143, 142–147, 151, 152, 154, 155,
145, 150, 165–176, 179, 180, 189, 197, 199, 206, 207, 215,
185, 187, 191, 193, 194, 198, 232, 233, 235, 245–247, 251,
259, 283, 284, 288, 294, 296,
346    
Index

304, 307, 311–315, 317, Entry 127, 139, 172, 181, 187, 203,
319–333, 337, 339, 340 205, 206, 252
Effect 3, 14, 46, 47, 53, 56, 66, 67, Envelope 21, 22
75, 77, 81, 83, 89, 97, 98, Environment 30, 42, 45, 56, 62,
100, 101, 108–110, 112, 114, 67, 72, 75, 82, 119, 126, 128,
122, 123, 129–135, 138, 139, 137, 154, 190, 197, 207, 225,
142, 145–147, 152, 167, 168, 243, 305, 315
170–172, 174, 175, 187, 190, E-participation 305
191, 193, 194, 197–199, 206, Equity 30, 44, 166, 212
208, 215, 216, 219, 224–226, Ethnic 44, 56, 59, 82, 96, 99, 100,
228, 242, 245, 251–253, 256, 166, 171, 192, 194, 196, 259,
258, 260, 269, 275, 287, 292, 289, 292, 317, 318
294, 295, 303, 304, 306, 313, Ethnolinguistic 66, 67, 80, 81, 129,
316–318, 321–325, 327, 328, 130, 143, 173, 184, 246, 288,
331 324
Effective xiii–xv, 5, 7, 9, 10, 14, 19, Eurobarometer 320
42, 72, 74, 76, 89, 109, 135, Europe xv, 3, 12, 17–19, 26, 45, 73,
137, 165–167, 173–175, 186, 82, 138
192, 194, 196, 200, 212, 220, European Bank for Reconstruction
223, 224, 227, 228, 233, 241, and Development (EBRD) 6,
248, 251, 256, 258, 260, 262, 9, 40, 45, 56
265, 266, 273, 284–286, 288, European Social Survey (ESS) 99,
294, 299, 300, 306, 311–314, 152, 315
339 European Union (EU) xv, 134, 135,
E-government 299, 300, 302–306, 227, 233, 260, 269
308 Exam xvi, 149, 251, 252, 329
E-government Development Index Expenditure 75, 81, 146, 174, 191,
(EDI) 302 194, 236, 293, 294
Egypt 1, 302 Export 12, 41, 44, 85, 135–137,
Election xiv, 74, 89, 153, 166–168, 261, 266, 270, 271
172, 179, 180, 182–185, 194, Externalities 75, 77, 88, 119, 154,
211, 213, 219, 250, 268, 293, 192, 204, 244, 320
294, 319–321, 331 Extortion 21, 25, 92, 114, 214, 221,
Electronic 300 252, 253, 286
Embezzlement 8, 43, 214, 276, 284
Enforce 65, 205
Entrenched 60 F
Entrepreneur 113, 114, 205, 208 Faculty 25
Index    
347

Fake 26, 29 Gender 57, 59, 72, 76, 91–93,


Falsification 260 99–104, 112, 115, 151, 152,
Federal Emergency Relief 307, 319, 322, 323, 328, 330,
Administration (FERA) 292 331
Federalism 75, 181, 184, 187, 191, General Social Surveys (GSS) 319
287 General Value Survey (GVS) 317
FF 12 Geography 71–73, 82, 84, 108, 114
Fine 10, 27, 226, 294 Georgia 213
Finland 7, 290 Germany 7, 15, 16, 27, 31, 93, 105,
Florence 2 136, 140, 183, 225, 270
Food 30, 92, 293 Ghana 22, 49, 237, 238, 247
Foreign Corrupt Practices Act Gift 8, 45, 91, 113, 291, 328
(FCPA) 81, 82, 265–267, Global Competitiveness Report
269–276, 338 (GRC) 40, 41
Foreign Direct Investment (FDI) 82, Governance xv, 2, 9, 40, 44, 45, 54,
119, 121, 129, 132, 140, 154, 57, 58, 86, 87, 101, 103, 112,
272 115, 129, 141, 142, 147, 192,
Forestry 149, 171, 247 207, 208, 235
Foundation 87, 94, 95, 169, 174, Graft 13, 126, 127
303 Grease the wheels 18, 119, 153, 155,
France 22, 31, 136, 140, 183, 232, 222
274 Greece 93, 247
Freedom 23, 83, 87, 88, 90, 95, 102, Growth 9, 13, 23, 24, 26, 33, 66,
130, 143, 145, 147, 169, 170, 82, 86, 119, 121–123, 125,
174, 175, 184, 189, 194–196, 126, 128–137, 141–145, 150,
200, 205, 287–290, 296, 302, 154, 155, 166, 168, 169, 190,
305, 319, 325, 339 214, 272, 274, 275, 300, 303,
Freedom House (FH) xvi, 43, 66, 313, 318, 327
174, 175, 185, 187, 195, 196, Guatemala 256, 259
245, 287, 288, 290, 318 Guyana 256, 259
Freedom of Information (FOI) 290
Free-market 58
Fujimori, Alberto 14 H
Harassment 172, 197, 213, 221,
222, 225, 226
G Hierarchy 64, 71, 79, 223
Gallup 40, 151 Hindi 292
Gastil 100, 109, 169, 187 Hispanic 323
348    
Index

History 3, 26, 27, 32, 67, 71–73, 80, Inspection 17, 18, 257, 258, 261
82, 84, 104, 114, 115, 325 Integrity 41, 112, 180, 301
Hong Kong xvi, 93, 105, 133, Inter-American Convention Against
231–233, 235–238, 338, 340 Corruption (IACAC) 269
Hospital 27, 28, 55, 251 Inter-governmental 197
Inter-jurisdictional 75, 189, 191,
192
I International Anti-Corruption
Ideology 22, 219 Academy (IACA) xvi
Illegal 5, 6, 8, 9, 15, 20, 32, 54, 120, International Country Risk Guide
127, 128, 149, 221, 261, 275, (ICRG) 2, 40–44, 49–52, 56,
285, 291, 326, 338 61–64, 66, 84, 98, 100, 131–
Illiterate 292, 311, 332 133, 143, 144, 146, 147, 149,
Import 12, 16, 41, 44, 46, 134–136, 153, 171, 187, 192, 194–196,
257, 260–262 208, 245, 246, 259, 287, 288,
Import-tax 257 290, 303, 325
Independent Commission Against International Crime Victimization
Corruption (ICAC) 233 Surveys (ICVS) 40, 41, 43, 55,
India xvi, 8, 12, 20, 25, 28, 32, 93, 148, 330
95, 103, 104, 190, 198, 226, International Monetary Fund (IMF)
232, 236, 243, 246, 247, 252, 29, 140
285, 290, 292, 293, 338 International Olympic Committee
Indices 41, 43, 50, 52–56, 61, 64, (IOC) 7
80, 81, 129–131, 141–143, Internet 151, 152, 205, 283, 293,
151, 169, 171, 173, 194, 196, 296, 299, 303–306, 308, 325
208, 218, 246, 258, 259, 274, Intimidation 213, 285
288, 290, 302, 326, 329 Invoicing 260, 261
Indonesian 11, 58, 172, 196, 234 Iraq 270
Inflate 234 Irrigation 12, 30, 32
Informal xv, 45, 55, 109, 120, 134, Islam 95, 96, 289
214, 215 Israel 329
Information and Communication Italy 12, 22, 31, 88, 93, 109, 136,
Technology (ICT) 283, 140, 186, 247
299–301, 305, 306, 308, 311,
314, 332, 339
Infrastructure 18, 45, 119, 123, 124, J
131, 154, 192, 212, 234, 304, Jamaica 30
308, 311, 337 Japan 31, 140, 246, 302
Index    
349

Java 58, 172, 234 245, 250, 288, 290, 294, 299,
Jews 11 303–306, 308, 313, 324, 326,
Jordan 20 330
Judge 28, 213, 217, 219 Lax 247
Judicial Independence (JI) 218–220 Laxenburg xvi
Jurisdiction 197, 266, 273 Leader 8, 43, 74, 166, 183
Justice xiv, xv, 2, 5, 13, 19, 39, 54, Legitimacy 95, 123, 147, 153, 337
67, 148, 211, 212, 214, 220, Leniency 224, 227
222, 224, 227, 237, 326, 331, Lesotho 31
337, 338 Leverage 222
l’Humanité 22
Literacy 95, 132, 199, 200, 325, 326
K Literate 325
Kathmandu 328 London 7
Kazakhstan 25, 93 Long-haul 247
Kenya 30, 111, 112, 256, 259 Luxury 31, 110, 294
Kickbacks 18, 43
Kohl, Helmut 10, 15, 183, 184
Korea xvi, 93, 111, 136, 166, M
235–237, 246, 302 Macao 236, 237
Korea Independent Commission Madhya Pradesh 198, 291
Against Corruption (KICAC) Majority 7, 14, 23, 28, 31, 75, 86,
301 91, 111, 165, 166, 169, 181,
Kun Koh 301 182, 184, 186, 187, 227, 292,
306, 331, 337
Malaria 28
L Malawi 93, 237, 238, 256, 259
Language 17, 134, 135, 272, 293, Malaysia xvi, 93, 136, 232, 235, 256
295 Mali 56, 133
Latin 89, 94, 135, 144, 168, 190, Manila 30
206, 256–258 Maputo 253–255
Laundering 268 Marcos, F. 11, 14, 270
Law xiv, 2, 8–10, 15, 19, 26, 44, Marx 9, 312
45, 56, 66, 73, 76, 81, 96, 98, Mayor 111, 301, 331
99, 102, 122–124, 128, 137, Measure 24, 39–41, 44, 46, 53–55,
141–143, 147, 155, 170, 173, 57–59, 66, 81, 84, 89, 90,
183, 203, 205, 209, 213, 218, 96, 100, 102, 110, 130, 132,
220–222, 224, 228, 231–233, 134, 135, 139, 140, 142–144,
350    
Index

151, 153, 169, 171, 187, 192, Nazi 11


194, 208, 214, 215, 251, 262, Neighbors 71, 87, 88, 115, 204, 317
272, 274, 287–289, 293, 295, Nepal 89, 252, 302
302–305, 313, 316, 318, 323 Nepotism 2, 32, 44, 328, 337
Measurement 4, 40, 46, 48, 260 Netherlands 7, 136, 329
Medical 5, 13, 18, 27, 151 Network 22, 23, 30, 313
Member of parliament (MP) 321 Newspaper 22, 23, 52, 80, 284, 288,
Meritocratic 241, 244–246, 258, 289, 292–295, 312, 320, 332
262 Nicaragua 30
Mery, J.C. 15 Niger 26, 56, 57
Mexico xvi, 13, 33, 132, 135, 232, Nigeria 20, 95, 112, 258, 289
243, 246, 256, 258, 259, 274, Non-Formal Education (NFE) 247
294 Non-Prosecution Agreement (NPA)
Milan 31 267
Military 44, 122, 124, 151, 330 Nordic 15, 94, 95
Mineral 108 Norway 7, 93, 171, 288
Ming 2 Nurse 28, 248
Mississippi 213
Mobile 306–308, 325
Mobutu Sese Seko 11, 14 O
Montesinos, Vladimir 14, 21 Olympic 1, 2, 7
Montesquieu 9 Oman 40–42
Morocco 28, 135 Online Procedures Enhancement
Moscow 25 (OPEN) 301, 302
Mozambique 253, 254 Organization of American States
Multi-agency 235 (OAS) xv, 268, 269
Multifaceted 1, 2, 32, 47, 168, 232, Organization of Economic
233, 337 Cooperation and Development
Multilateral 41, 44 (OECD) xv, 6, 27, 63, 233,
Multinational 13, 31 245, 246, 265, 268, 269, 272,
Multi-purpose 194, 232 273, 275, 302, 338
O-ring xiv
Ostracize 339
N Ouagadougou 247
National Election Studies (NES) 320 Over-billing 28
National Longitudinal Survey of Over-invoicing 293
Youth (NLSY) 322 Oxford 26, 93
Index    
351

P Poll 20, 43, 151


Pakistan 11, 12 Pollution 31
Paraguay xvi, 55 Poor 5, 13, 18, 23, 29, 30, 60, 103,
Paris 15 142, 145, 153, 154, 192, 211,
Parliament 73, 100–102, 152, 246, 248, 311, 317, 338
184–186 Port 247, 253, 254, 257
Parliamentarism 75, 181, 187, 193 Poverty 12, 13, 30, 57, 102, 103,
Parties xiv, xv, 6, 9, 10, 12, 15, 16, 123, 143, 145, 154, 313, 325
18, 23, 28, 74, 77, 80, 120, Pre-shipment inspection (PSI)
152, 167–169, 171, 172, 256–258, 260–262
179–183, 186, 190, 204, 215, Presidential 89, 90, 165, 183, 184,
224, 226, 227, 243, 268, 293, 186, 187, 193, 194, 319
321, 331, 332 Presidentialism 75, 181, 184, 187
Partisan 22, 23, 42, 115, 179, 181, Press 21–23, 87, 102, 184, 189,
213, 216, 217, 219, 286, 331, 194–196, 200, 273, 286–290,
332 292, 294–296, 302, 325, 339
Perception 39, 41, 42, 46, 49–51, Privatization 208, 241, 244, 258,
53–57, 61, 67, 97, 114, 151, 262
152, 209, 258, 275, 290 Procurement 9, 12, 13, 17, 25, 111,
Persistence xiv, 39, 54, 59–64, 66, 125, 206, 207, 209, 251, 252
68, 72, 79, 115, 324 Propensity 42, 104, 115, 256, 275
Peru xvi, 14, 21, 49, 93, 135, 147, Property 5, 19, 73, 120, 122, 259,
148, 258, 259 303, 316
Pervasive 55, 59, 60, 65, 67, 79, 98 Property-rights 19, 120, 303, 316
Petty 3, 9, 14, 30–32, 45, 47, 55, 57, Prosecute 218, 237
180, 227, 228, 247, 285, 328, Protestantism 56, 95, 289
337 Psychological 56, 112, 113
Pharmaceutical 28, 29 Public Expenditure Tracking Surveys
Philippine 262 (PETS) 39, 48, 49, 67, 294,
Political and Economic Risk 295
Consultancy (PERC) 236
Politics 5, 13, 14, 41, 44, 101, 258,
320 Q
Polity 80, 90, 173, 175, 186, 320, Quantitative Service Delivery
325 Surveys (QSDS) 39, 48, 49, 67
Polity 2 171, 290
352    
Index

R Securities and Exchange Commission


Radio 22, 23, 283, 284, 288, 291, (SEC) 266, 273
292, 294 Senegal 56
Rajasthan 248 Sentencing 212, 220, 224
Rank 15, 50–52, 181, 290 Seoul 7, 301
Red Tape 138, 149, 197, 200, 205, Seva Mandir 247, 248
223, 253 Shanghai 225
Re-elect 179, 249, 250 Shenzhen 307
Regulation xv, 10, 16, 53, 77, 84, Shipment 254, 257
114, 119, 125, 138, 139, 149, Siemens 270
153, 176, 196, 197, 200, Singapore xvi, 93, 103, 104, 132,
203–209, 211 166, 227, 231–233, 235–238,
Religion 53, 71, 73, 76, 94–97, 105, 256, 288, 338, 340
115, 152, 169, 172, 193 Slovak 289
Religiosity 98–100, 172 Slovenia 93, 198
Rent-seeking 14, 65, 72, 73, 167, Smuggling 11, 20, 110, 149
171, 182, 212, 257 Sociability 105, 306
Republican 23, 216 Social capital 76, 78, 305, 306,
Resource-rich 72, 171, 176 312–316, 319–322, 324, 332
Reuter 24 Socialist 87, 170, 183, 213
Right to Information Act (RTIA) Soviet 17, 168, 289
285, 290 Spain 18, 181
Roads 58, 131, 253 SPIDER 300
Romanian 221, 251 Spillover 77, 87, 97, 115, 204
Russia 15, 19, 22, 24, 25, 89, 93, Staffing 237
329 Sub-Saharan 85, 94, 237, 317
Rwanda 256, 259 Suharto, Mohamed 11, 14, 171, 265
Sweden 7, 93, 136, 290
Switzerland 93, 270, 325
S Syracuse 43
Saeol 302 Systemic 64, 65, 68, 71, 72, 78, 95,
Salary 2, 12, 27, 32, 114, 247–249 110, 111, 113, 115, 223, 243,
Salvador xvi, 30, 88 339
Sand the wheels 154
Sao Tome and Principe (STP) 85, 86
Scandalmonger 180 T
Scandinavian 340 Taiwan 166, 221, 274
Secular 171, 172
Index    
353

Tanzania 28, 29, 49, 133, 232, 235, Uganda 30, 49, 111, 198, 235, 237,
237, 256, 259, 313 238, 243, 256, 259, 284, 294
Tariff 123, 207, 254, 257, 260–262 Ukraine 17, 18, 24, 83, 93
Tax 16, 18, 41, 44, 53, 78, 84, 122, Under-the-table 28
123, 126, 132, 133, 138, 140, Unions 2, 8, 32, 247, 315, 321, 337
194, 196–198, 205, 208, 209, United Nations Conference on Trade
223, 243, 256–260, 267, 269 and Development (UNCTAD)
Telecommunication 131, 208, 303, 272
304, 308 United Nations Convention Against
Telephone 207 Corruption (UNCAC) xv, 265,
Television 21–23, 151, 283, 296 268
Terrorism 338 University 10, 25, 27, 92, 93, 103,
Testimony 15, 213 197, 225, 227, 307, 323, 328,
Thailand xvi, 18, 235, 236 329
Togo 56, 57 Unsafe 8, 147, 148
Transnational 276, 338
Transparency xvi, 2, 6, 11, 12, 20,
21, 26–31, 40, 42, 54, 62, V
76, 77, 80, 83, 88, 142, 165, Venezuela 135, 214, 258, 259, 270
167, 169, 173, 175, 176, Victimization 55
184, 195, 200, 208, 212, Vietnam 302
213, 218, 231, 233, 236, Voices xiii, 40, 54
250, 266, 268, 271, 273,
283–285, 287, 288, 290,
291, 294, 296, 300, 301, W
315 Wage 81, 84, 215, 228, 241, 242,
Trust 24, 71, 76, 82, 83, 99, 112, 245–247, 249–252, 262
114, 115, 123, 124, 143, Washington xvi, 272
150–153, 155, 220, 221, Watchdog 21
227, 243, 301, 305, 311–314, Water 1, 2, 5, 13, 17, 29–31, 77,
316–319, 323, 324, 326, 330, 131, 198, 199, 204, 291
331, 337 Websites 42, 94, 300
Tsunami 2 Whistleblower 222
Turkey 14, 168, 246 Women 30, 76, 77, 98, 100–103,
115, 168, 294, 326
World Bank (WB) xv, 6, 40–45, 56,
U 62, 80, 86, 90, 109, 133, 135,
Udaipur 248 137, 139, 141–144, 146, 147,
354    
Index

170, 173, 175, 184, 185, 187, X


190, 193, 195–197, 205, 208, Xerox 7
236, 246, 259, 268–270, 273, Xiamen 227
287–289, 302, 303, 305, 327
World Competitiveness Report
(WCR) 52, 61, 62, 108, 109 Y
World Economic Forum (WEF) xvi, Yahoo 305
40, 41, 43, 62, 64, 67, 134,
141, 218
World Enterprise Surveys (WES) 42, Z
45, 50, 51, 137 Zaire 11, 110, 257
World Governance Indicators (WGI) Zambia 49, 133, 237, 256, 259
40–42, 44, 49, 50, 52, 56, 61, Zealand 93
67, 324 Zhuhai 307
World Justice Project (WJP) 218, Zimbabwe 93, 259
330
World Trade Organization (WTO)
82, 272, 338
World Values Survey (WVS) 97, 98,
100, 306, 316, 318, 319
Wrestler 2