Abstract
In contrast to the arguments by the existing literature on corruption and democracy that democratic countries have lesser corruption, this paper argues that democracy, by itself, may not be a corruption-deterring institution. The authors, however, suggest that democracies coupled with effective governance structures are the ones to mitigate corruption. Despite the ubiquity of literature on corruption, missing in the academic scholarship is the question whether the impact of political institutions on corruption is conditional on governance effectiveness, although democracy and corruption are the phenomena for which the governance effectiveness of a country could be an important factor. Most importantly, the existing literature has failed to answer the question whether democracies always affect corruption in the same way, regardless of the country’s governance effectiveness and capacity. Little attention has been paid on democracy-governance-corruption nexus. By assuming that democracies and political institutions are not corruption-deterring institutions, in themselves, at least in developing countries, this paper hypothesizes that the lack of governance effectiveness is a key driver of corruption. This comparative analysis of 98 developing countries for the years 2002-2010 using ordinary least-squares and two-stage least squares methods with lags as instrumental variables supports the authors’ hypotheses using different measures of corruption (the World Bank’s Control of Corruption Index and the Transparency International’s Corruption Perceptions Index). The explanatory power of governance effectiveness is at least as important as conventionally accepted causes of corruption such as economic development.
