DEMOCRACY AND CORRUPTION: SOME
NEW EVIDENCE
Jacob Musila
Athabasca University, Canada
jacobm@athabascau.ca
corruption.
ABSTRACT
This study explores the relationship between democracy and
corruption. Using data on African countries, I find the
relationship between democracy and corruption measures to be
statistically significant and nonlinear. The coefficients of the
nonlinear regressions suggest that corruption is slightly lower in
autocracies than in partial democracies; and once past a
threshold, corruption is substantially lower in full or near-full
democracies. Besides the democracy variables, I find legal
systems, religious traditions, and ethnic fractionalization to be
important determinants of cross-country variations in corruption
rates.
OVERVIEW OF PRESENTATION

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


the problem/issue
literature
analytical framework
empirical analysis
results
threshold democracy
conclusion
THE PROBLEM OF STUDY



Gary Becker observed that the former Soviet bloc countries
have similar long-run growth rates as those in developed
Western economies.
Ehrlich and Lui (JPE, 1999) claimed that autocratic regimes
could achieve growth rates equal or higher than decentralized
democracies because corruption is much constrained in the
autocracies.
Ehrlich and Lui’s observation, together with the empirical
analyses that find a positive correlation between democracy
and corruption, suggests that the relation between democracy
and corruption is nonlinear. Nobody has successfully test this
possibility.
EVIDENCE 1
Corporate Ethics and Democracy, 2004
70.0
60.0
Corporate Ethics Index
50.0
40.0
y = 0.0095x2 - 0.7768x + 42.651
R2 = 0.3253
30.0
20.0
10.0
0.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Political & Civil Rights Index
70.0
80.0
90.0
100.0
EVIDENCE 2
Public Sector Ethics and Democracy, 2004
60.0
50.0
Public Sector Ethics Index
2
y = 0.0075x - 0.4717x + 24.435
2
R = 0.4619
40.0
30.0
20.0
10.0
0.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Political & Civil Rights Index
70.0
80.0
90.0
100.0
EVIDENCE 3
Corporate Goverance and Democracy, 2004
90.0
80.0
Coporate Goverance Index
70.0
y = 0.0078x2 - 0.5241x + 42.646
R2 = 0.261
60.0
50.0
40.0
30.0
20.0
10.0
0.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Political and Civil Rights Index
70.0
80.0
90.0
100.0
EVIDENCE 4
Corruption Perception, 2004
7.0
6.0
CPI Score
5.0
y = 0.0008x2 - 0.0489x + 2.7782
R2 = 0.725
4.0
3.0
2.0
1.0
0.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Political & Civil Rights Index
70.0
80.0
90.0
100.0
LITERATURE
Linear relationship:
 Sung, Hung En (Crime, Law & Social Change, 2004)
 Treisman, Daniel (Journal of Pub. Economics, 2000)
Nonlinear relationship:
 Montinola and Jackman (BJPS, 2002, p.166)
Corruption = - 14.855 + 2.235 log (GDP/POP88)
- 1.816 OPEC member
+ 0.043 log (Govt. size88)
+ 0.203 democracy88
+ 0.080 (democracy88)2
Estimator = OLS; adjusted R2 = 0.76
ANALYTICAL FRAMEWORK
Corruption function:
Φ = b(y) – c(x).
(1)
Φ is non-decreasing in b(y) and non-increasing in c(x). If b(y') ≥
b(y) or c(x')  c(x), then for rational individuals
Φ(b(y'), c(x')) ≥ Φ(b(y), c(x)).
(2)
EMPIRICAL ANALYSIS
A well known determinant of corruption is the risk of getting
caught and punished. According to public choice literature, this
risk depends on:
(a) Effectiveness of the legal system
(b) Religious traditions
(c) Historical/colonial traditions
(d) Ethnic divisions
(e) Democracy
EMPIRICAL MODEL
Corruption = a0 + a1 former British colony
+ a2 common law system
+ a3 politically relevant ethnic groups
+ a4 Christian affiliation
+ a5 democracy +a6 democracy-squared + e (3)
where the corruption variable takes on corporate ethics index,
public sector ethics index, corporate governance index, and
corruption perception index; ai’s are coefficients to be
estimated; and e is the error term (i.e., white noise).
DATA
Variable
Corporate ethics (cei)
Public sector ethics (pei)
Corporate governance (cgi)
Corruption perception (cpi)
Former British colony (fbc)
Common law system (cls)
Christian affiliation
Politically rel. ethnic groups
Democracy
source
Kaufman (GCR, 2004)
,,
,,
Transparency International
Treisman (J. Pub E, 2000)
,,
CIA World Factbook
Posner (AJPS, 2004)
freedomhouse.org
value
0<cei<100
0<cpi<10
1 if fbc; 0 otherwise
1 if cls; 0 otherwise
% of Christians in pop
0 = auth; 100= demo
RESULTS: Table 1, OLS Estimates (most exogenous variables only)
Dependent variables
Explanatory variables
Constant
Former British colony
Common law system
Politic rel. ethnic groups
Christian religion affil.
Adjusted R-Square
Number of observations
Corporate
ethics
Public sector
ethics
Corporate
governance
Corruption
perception
24.249***
(4.076)
0.111
(0.017)
12.156
(1.583)
-16.078
(-1.647)
0.174
(1.695)
23.031***
(3.414)
3.845
(0.507)
6.303
(0.724)
-23.882**
(-2.154)
0.134
(1.155)
27.668***
(3.689)
8.893
(1.055)
11.571
(1.195)
-13.059
(-1.060)
0.136
(1.055)
3.460***
(10.077
-0.554
(-1.121)
1.150*
(2.030)
-2.932***
(-5.151)
0.008
(1.343)
0.483
19
0.294
19
0.483
19
0.569
28
RESULTS: Table 2, OLS Estimates (democracy introduced nonlinearly)
Dependent variables
Explanatory variables
Constant
Corporate
ethics
51.204***
(4.196)
Former British colony
-8.580*
(-1.778)
Common law system
23.530***
(4.038)
Politic rel. ethnic groups -5.921
(-0.819)
Christian religion affiliation 0.022
(0.279)
Democracy
-1.363***
(-3.239)
Democracy-square
0.014***
(3.732)
Adjusted R-square
0.774
Number of observations 19
Public sector
ethics
Corporate
governance
Corruption
perception
34.983*
(2.164)
-4.491
(-0.702)
15.323*
(1.985)
-10.968
(-1.145)
0.009
(0.087)
-0.894
(-1.605)
0.011*
(2.105)
0.579
19
47.175**
(2.418)
0.248
(0.032)
21.893**
(2.350)
-1.277
(-0.110)
-0.004
(-0.034)
-1.139
(-1.693)
0.013*
(2.062)
0.626
19
3.476***
(4.658)
-0.323
(-0.705)
0.596
(1.058)
-1.821***
(-3.596)
0.008*
(1.893)
-0.047*
(-1.971)
0.001***
(3.027)
0.772
18
COMBINED EFFECTS OF DEMOCRACY VARIABLES
The coefficients of the combined democracy variables
computed à la Ralph and Srivastava (The American
Statistician, 1979) were positive and statistically significant at
the 5% level or better. The t-ratios for combined democracy
variables in the regressions are as follows:
Corporate ethics
Public sector ethics
Corporate governance
Corruption perception
Democracy and
Democracy-square
4.464
3.512
2.909
4.579
THRESHOLD DEMOCRACY
Democracy (%)
Corporate ethics index
Public sector ethics index
Corporate governance index
Corruption perception index
48.7
40.6
43.8
23.5
corresponding index
26
16
35
2.1
CONCLUSION



This study empirically tests for nonlinearity between democracy and
the various corruption measures for African countries. The results
show that the correlation between democracy and corruption is
statistically significant and the relationship is of first-degree polynomial.
The estimates suggest that authoritarian countries are slightly less
prone to corruption than countries at intermediate levels of democracy,
and, that beyond the threshold level of democracy, more democratic
countries are less prone to corruption. The threshold levels of
democracy range between 23.5% and 48.7% for African countries
depending on the measure of corruption.
The estimates also suggest that countries with large Christian
followers are perceived to be less corrupt, countries with high ethnic
divisions are perceived to be more corrupt, and countries with common
law legal system have higher corporate and public sector ethics as
well as higher corporate governance standards.