Abstract
We estimate the impact of corruption on growth of output per worker in U.S. states. We improve on existing studies of the cost of corruption by using a better specified empirical model, focusing on a study population that is less likely to be affected by parameter heterogeneity, and controlling for endogeneity using political variables to instrument for corruption. We find that corruption plays a significant and causal role in lowering growth and investment across the states.
Similar content being viewed by others
References
Acemoglu, D., & Verdier, T. (2000). The choice between market failures and corruption. The American Economic Review, 90(1), 194–211.
Acemoglu, D., Johnson, S., & Robinson, J. A. (2001). The colonial origins of comparative development: an empirical investigation. The American Economic Review, 91(5), 1369–1401.
Ades, A., & Di Tella, R. (1999). Rents, competition, and corruption. The American Economic Review, 89(4), 982–993.
Adsera, A., Boix, C., & Payne, M. (2003). Are you being served? Political accountability and quality of government. Journal of Law, Economics and Organization, 19(2), 445–490.
Alesina, A., Baqir, R., & Easterly, W. (1999). Public goods and ethnic divisions. Quarterly Journal of Economics, 114(4), 1243–1284.
Alt, J., & Lassen, D. (2008). Political and judicial checks on corruption: Evidence from American state governments. Economics and Politics, 20(1), 33–61.
Andrews, D. W. K., Moreira, M., & Stock, J. H. (2006). Optimal two-sided invariant similar tests for instrumental variables regression. Econometrica, 74(3), 715–752.
Andrews, D. W. K., Moreira, M., & Stock, J. H. (2007). Performance of conditional Wald tests in IV regression with weak instruments. Journal of Econometrics, 139(1), 116–132.
Barro, R., & Sala-i-Martin, X. (1992). Convergence. Journal of Political Economy, 100(2), 223–251.
Beemiller, R. M., & Downey, G. K. (1998). Gross state product by industry, 1977–1996. Survey of Current Business, 78(June), 15–37.
Book of the states (1970). Lexington: The Council of State Governments.
Brock, W. A., & Durlauf, S. N. (2000). Growth economics and reality. NBER Working Paper W8041.
Campante, F., Chor, D., & Dor, Q. A. (2009). Instability and the incentives for corruption. Economics and Politics, 21(1), 42–92.
De Soto, H. (1989). The other path. New York: Harper and Row.
Depken, C. (1998). The effects of campaign contribution sources on the Congressional elections of 1996. Economics Letters, 58(2), 211–215.
Depken, C., & LaFountain, C. (2006). Fiscal consequences of public corruption: empirical evidence from state bond ratings. Public Choice, 126(1), 75–85.
Ehrlich, I., & Lui, F. T. (1999). Bureaucratic corruption and endogenous economic growth. Journal of Political Economy, 107(S6), S270–S293.
Fisman, R. (2001). Estimating the value of political connections. American Economic Review, 91(4), 1095–1102.
Fisman, R., & Svensson, J. (2005). Are corruption and taxation really harmful to growth? Firm level evidence. Journal of Development Economics, 83(1), 63–75.
Fredricksson, P. G., List, J. A., & Millimet, D. L. (2003). Bureaucratic corruption, environmental policy and inbound U.S. FDI: Theory and evidence. Journal of Public Economics, 87(7–8), 1407–1430.
Garofalo, G., & Yamarik, S. (2002). Regional growth: evidence from a new state-by-state capital stock series. Review of Economics and Statistics, 84(2), 316–323.
Glaeser, E. L., & Saks, R. E. (2006). Corruption in America. Journal of Public Economics, 90(6–7), 1053–1072.
Glaeser, E., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2004). Do institutions cause growth? Journal of Economic Growth, 9(3), 271–303.
Goel, R. K., & Nelson, M. A. (1998). Corruption and government size: a disaggregated analysis. Public Choice, 97(1–2), 107–120.
Grier, K. (1989). Campaign spending and Senate elections, 1978–1984. Public Choice, 63(3), 201–219.
Hausman, J., Stock, J. H., & Yogo, M. (2005). Asymptotic properties of the Hahn-Hausman test for weak instruments. Economics Letters, 89(3), 333–342.
Huntington, S. P. (1968). Political order in changing societies. New Haven: Yale University Press.
Johnson, S., Kaufmann, D., & Shleifer, A. (1997). The unofficial economy in transition. Brookings Papers on Economic Activity, 28(2), 159–221.
Kocherlakota, N., & Yi, K.-M. (1995). Can convergence regressions distinguish between exogenous and endogenous growth models? Economics Letters, 49(2), 211–215.
Kousser, J. M. (1999). Colorblind injustice: minority voting rights and the undoing of the second reconstruction. Chapel Hill: University of North Carolina Press.
Leff, N. H. (1964). Economic development through bureaucratic corruption. American Behavioral Scientist, 82(2), 337–341.
Levitt, S. D. (1994). Using repeat challengers to estimate the effect of campaign spending on election outcomes. Journal of Political Economy, 102(2), 777–798.
Lott, J. R., Jr. (1991). Does additional campaign spending really hurt incumbents? The theoretical importance of past investments in political brand name. Public Choice, 72(1), 87–92.
Lui, F. T. (1985). An equilibrium queuing model of bribery. Journal of Political Economy, 93(4), 760–781.
Mankiw, N. G., Romer, D., & Weil, D. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107(2), 407–437.
Mauro, P. (1995). Corruption and growth. Quarterly Journal of Economics, 110(3), 681–712.
McQuinn, K., & Whelan, K. (2007). Solow (1956) as a model of cross country growth dynamics. Oxford Review of Economic Policy, 23(1), 45–62.
Moreira, M. J. (2003). A conditional likelihood ratio test for structural models. Econometrica, 71(4), 1027–1048.
Munnell, A. (1990). Why has productivity growth declined? Productivity and public investment. New England Economic Review, (January), 3–22.
Murphy, K., Shleifer, A., & Vishny, R. (1991). The allocation of talent: Implications for growth. Quarterly Journal of Economics, 106(2), 503–530.
Murphy, K., Shleifer, A., & Vishny, R. (1993). Why is rent-seeking so costly to growth? American Economic Review, 83(2), 409–414.
Myrdal, G. (1968). Asian drama. New York: Random House.
New York Times Editors 2009. What’s Up With New Jersey? Resource Document. http://www.nytimes.com/2009/07/25/nyregion/25jersey.html?_r=1&hp=&pagewanted=print, New York Times, Accessed 6 August, 2009.
North, D. (1990). Institutions, institutional change, and economic performance. Cambridge: Cambridge University Press.
Olken, B. A. (2007). Monitoring corruption: evidence from field experiments in Indonesia. Journal of Political Economy, 115(2), 417–452.
Olson, M. (2000). Power and prosperity: outgrowing communist and capitalist dictatorships. New York: Basic Books.
Public Integrity Section (2001). Criminal Division, U.S. Department of Justice 2001. Report to Congress on the Activities & Operations of the Public Integrity Section for 2001. http://www.usdoj.gov/criminal/pin/AnnualReport2001.pdf.
Renshaw, V., Trott, E. A., & Friedenberg, H. L. (1988). Gross state product by industry, 1963–1986. Survey of Current Business, 68(March), 30–46.
Rose-Ackerman, S. (1978). Corruption: a study in political economy. New York: Academic Press.
Shaw, P., Katsaiti, M. S., & Jurgilas, M. (2009). Corruption and growth under weak identification. Economic Inquiry. doi:10.1111/j.1465-7295.2009.00276.x.
Shleifer, A., & Vishny, R. (1993). Corruption. Quarterly Journal of Economics, 108(3), 599–617.
Solow, R. (2000). Perspectives on growth theory (2nd edn.). Oxford: Oxford University Press.
Staiger, D., & Stock, J. H. (1997). Instrumental variables regression with weak instruments. Econometrica, 65(3), 557–586.
Stock, J. H., & Yogo, M. (2002). Testing for weak instruments in linear IV regression. NBER working paper T0284.
Stratmann, T. (1995). Campaign contributions and congressional voting: does the timing of contributions matter? The Review of Economics & Statistics, 77(1), 127–136.
Stratmann, T. (1998). The market for congressional votes: is timing of contributions everything? Journal of Law and Economics, 41(1), 85–113.
Svensson, J. (2003). Who must pay bribes and how much? Quarterly Journal of Economics, 118(1), 207–230.
Svensson, J. (2005). Eight questions about corruption. Journal of Economic Perspectives, 19(3), 19–42.
Tarr, G. A. (2000). Understanding state constitutions. Princeton: Princeton University Press.
Tullock, G. (1990). The costs of special privilege. In J. E. Alt & K. Shepsle (Eds.) Perspectives on political economy (pp. 195–211). Cambridge: Cambridge University Press.
Weingast, B. (1995). The economic role of political institutions: market-preserving federalism and economic development. Journal of Law, Economics, and Organization, 11(1), 1–31.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Johnson, N.D., LaFountain, C.L. & Yamarik, S. Corruption is bad for growth (even in the United States). Public Choice 147, 377–393 (2011). https://doi.org/10.1007/s11127-010-9634-5
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11127-010-9634-5