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Democracy and corruption: a complex relationship

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Abstract

We argue that an ‘electoral democracy’ is not sufficient to reduce corruption. Our contention is that the institutions associated with mature democracy are crucial to successfully deterring corrupt behaviour. At the core of our argument is the idea that with well-functioning institutions, the probability of detection and punishment is sufficiently high to deter most decision makers from choosing to act corruptly. The empirical evidence we present supports this idea. The nonlinearity of democracy variables is tested to confirm that an advanced stage of democracy is crucial for combating corruption.

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Notes

  1. Corruption–the misuse of public offices for private gains–undermines economic development by weakening the institutional foundation on which economic growth depends [7, 37]. It also discourages investment, reduces tax revenues and lowers the quality of infrastructure and public services [26, 38, 41, 66]. Corruption is problematic particularly for developing and post-communist countries [33, 57].

  2. The concept of electoral democracy emerges from Schumpeter’s [56] emphasis on electoral competition as the core of democracy. The contemporary minimalist concept of democracy or equivalently an ‘electoral democracy’ refers to a multi-party system with (relatively) free and fair elections, but deficient in many important aspects that define a liberal democracy. See Diamond [16] and Tronquist [64, p. 98] for details.

  3. The narrow-democracy concept, which defines democracy as the selection of leaders through competitive elections by the people, comes from Huntington [30]. Electoral rights data have been compiled by Gastil [23] and Freedom House [21]. Bollen [10] constructed democracy index that included political liberties and popular sovereignty. Barro [8] notes that the Freedom House civil liberties index is a broader concept of democracy as it covers freedom of speech, press freedom and religious freedom and considers a variety of legal protections.

  4. There is no cross-country study that presents a differential comparative analysis based on an aggregate democracy measure, and its various separate components, and the nonlinearities of these variables.

  5. Studies by Montinola and Jackman [44] and Sung [60] find an increase in corruption level in the transitional stage.

  6. The term ‘illiberal democracy’ was popularised by the widely-read work of Fareed Zakaria [70]. We use this term interchangeably with the term ‘electoral democracy’.

  7. Rose, Munro and Mishler [49] contend that the current Putinist political equilibrium in the Russian Federation is characterised by ‘resigned acceptance’.

  8. We should note here that while there was considerable freedom for the institutions necessary for liberal democracy to form, there were substantial levels of corruption in 18th Century Britain [6].

  9. Any extra payment additional to the actual price made to the bureaucrat by a private agent for getting permits or licenses will be termed a “bribe.”

  10. As wage rate W cannot be negative.

  11. See Transparency International [62]. This index has been most commonly used in empirical studies in the economics literature [2, 3, 12, 18, 26, 33, 44, 54, 63, 69].

  12. Political rights include electoral process, political pluralism and functioning of government, and the civil liberties encompass freedom of expression and belief, associational and organizational rights, rule of law, personal autonomy and individual rights, and components of press freedom are laws and regulations, political controls and economic control [21].

  13. Arat [5] and Alvarez et al. [4] combine several democracy attributes using multiplicative aggregation rules.

  14. EF is equally weighted based on eight individual freedoms: business freedom, trade freedom, monetary freedom, freedom from government, fiscal freedom, property right, investment freedom and financial freedom. We excluded freedom from corruption component from the original economic freedom index as corruption is the dependent variable. The index is re-scaled from 0 to 10, where 10 represent the maximum level of freedom.

  15. The results are not reported here, will be available upon request from authors.

  16. Although corruption index ranges from 0 to 10, there is no value that contains zero. Hence, we can utilize panel estimation technique to measure the impact of democracy in combating corruption.

  17. Random effect results are not reported here but will be available from authors on request.

  18. TSLS results are not reported here but will be available on request from authors.

  19. OLS results are not reported here but will be available on request from authors.

  20. TSLS results are not reported here but will be available on request from authors.

  21. In federal structured states the competition among government officials increases. Weingast [67] and Rose-Ackerman [52] have argued that federal structures make more honest and efficient government by providing for competition between sub-jurisdictions. By contrast, Shleifer and Vishny [58] argue that when officials monopolise complementary products, they are likely to over graze, thus leading to sub-optimal over extraction.

  22. The higher value of CCI indicates a higher control of corruption.

  23. A higher value of CCI indicates greater control over corruption.

  24. The negative sign of PR suggests that greater political rights do not increase the control of corruption but the positive coefficient of RL indicates that the control of corruption increases with higher rule of law.

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Acknowledgments

We wish to thank Jeff Kline, Gulasekaran Rajaguru, and Ahmed Khalid for helpful comments and discussions.

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Authors and Affiliations

  1. School of Accounting, Finance and Economics, Edith Cowan University, Joondalup, WA, Australia

    Shrabani Saha

  2. School of Economics and Finance, Massey University, Palmerston North, New Zealand

    Rukmani Gounder

  3. Faculty of Business, Bond University, Gold Coast, Australia

    Neil Campbell

  4. Department of Accounting, Finance and Economics, Griffith University, Brisbane, Australia

    J. J. Su

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  1. Shrabani Saha
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  2. Rukmani Gounder
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  3. Neil Campbell
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  4. J. J. Su
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Correspondence to Neil Campbell.

Appendixes

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Appendix 1

Table 6 Data sources
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Appendix 2

Table 7 Descriptive statistics
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Saha, S., Gounder, R., Campbell, N. et al. Democracy and corruption: a complex relationship. Crime Law Soc Change 61, 287–308 (2014). https://doi.org/10.1007/s10611-013-9506-2

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