Are Corruption Indices a Self-Fulfilling Prophecy? A Social Labeling Perspective of Corruption

Abstract

Rankings of countries by perceived corruption have emerged over the past decade as leading indicators of governance and development. Designed to highlight countries that are known to be corrupt, their objective is to encourage transparency and good governance. High rankings on corruption, it is argued, will serve as a strong incentive for reform. The practice of ranking and labeling countries “corrupt,” however, may have a perverse effect. Consistent with Social Labeling Theory, we argue that perceptual indices can encourage the loss of needed investment and, thus, contribute to higher rates of corruption within unfavorably ranked countries. In effect, corruption indices may inhibit foreign direct investment, the effect of which is to encourage the status quo in terms of corruption ranking. Using an experimental study design, we test the effects of country corruption rankings on the assessment of country investment desirability and find ranking exposure causes shifts in country investment desirability for 10 of 12 countries studied. These findings suggest that corruption rankings, which are based on perceptions of corruption, may cause country isolation and a reduction in legitimate means of investment.

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Acknowledgments

We would like to thank Gem Guiang for her excellent research assistance and the Zicklin Center for Business Ethics Center for funding this project.

Tom Dunfee affected our development as academics. This article reflects Tom’s influence on our scholarship in two ways. It advances the discussion of corruption, a topic that was an ongoing concern of Tom’s. It also reflects Tom’s approach to scholarship – to thoughtfully question even those concepts that are widely accepted and respected. Here we question the legitimacy and influence of popular corruption rankings because of their empirical shortcomings and potential damage to developing economies. We will sorely miss hearing Tom’s critique of our work and seeing a warm grin spread across his face as we exchange ideas. More than anything, we will miss Tom’s mentorship, leadership and unwavering integrity.

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Correspondence to Danielle E. Warren.

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Warren, D.E., Laufer, W.S. Are Corruption Indices a Self-Fulfilling Prophecy? A Social Labeling Perspective of Corruption. J Bus Ethics 88, 841–849 (2009). https://doi.org/10.1007/s10551-009-0316-5

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Keywords

  • corruption
  • collective action
  • network governance