Department of Economics and Business Economics

The Transition of Corruption: Institutions and dynamics

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  • wp19_06

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The cross-country data for honesty/corruption and income has a correlation of about 0.75, and the data have a typical transition path; but the correlation of the growth rate and honesty is negative. Thus, the short and long-run findings are contradictory, and it is shown that the contradiction lasts a dozen years. The transition of corruption happens relatively late and works through changes in institutions. To catch all institutions the Polity-index is used for the political dimension and the Fraser-index of economic freedom for the economic one. The two indices explain as much as income, but they both have a transition, so the relations are partly spurious. To identify the non-spurious part of the relation and sort out causality, the D-index is defined as the difference between the corruption index and the transition path. Institutional instability increases corruption, but when institutions stabilize, both democracy and economic freedom increase honesty.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages26
Publication statusPublished - 15 May 2019
SeriesEconomics Working Papers

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