Public Choice

, Volume 147, Issue 3–4, pp 377–393 | Cite as

Corruption is bad for growth (even in the United States)

  • Noel D. JohnsonEmail author
  • Courtney L. LaFountain
  • Steven Yamarik


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.


Corruption Investment Economic growth 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Acemoglu, D., & Verdier, T. (2000). The choice between market failures and corruption. The American Economic Review, 90(1), 194–211. CrossRefGoogle Scholar
  2. 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. CrossRefGoogle Scholar
  3. Ades, A., & Di Tella, R. (1999). Rents, competition, and corruption. The American Economic Review, 89(4), 982–993. CrossRefGoogle Scholar
  4. 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. CrossRefGoogle Scholar
  5. Alesina, A., Baqir, R., & Easterly, W. (1999). Public goods and ethnic divisions. Quarterly Journal of Economics, 114(4), 1243–1284. CrossRefGoogle Scholar
  6. Alt, J., & Lassen, D. (2008). Political and judicial checks on corruption: Evidence from American state governments. Economics and Politics, 20(1), 33–61. Google Scholar
  7. 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. CrossRefGoogle Scholar
  8. 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. CrossRefGoogle Scholar
  9. Barro, R., & Sala-i-Martin, X. (1992). Convergence. Journal of Political Economy, 100(2), 223–251. CrossRefGoogle Scholar
  10. Beemiller, R. M., & Downey, G. K. (1998). Gross state product by industry, 1977–1996. Survey of Current Business, 78(June), 15–37. Google Scholar
  11. Book of the states (1970). Lexington: The Council of State Governments. Google Scholar
  12. Brock, W. A., & Durlauf, S. N. (2000). Growth economics and reality. NBER Working Paper W8041. Google Scholar
  13. Campante, F., Chor, D., & Dor, Q. A. (2009). Instability and the incentives for corruption. Economics and Politics, 21(1), 42–92. CrossRefGoogle Scholar
  14. De Soto, H. (1989). The other path. New York: Harper and Row. Google Scholar
  15. Depken, C. (1998). The effects of campaign contribution sources on the Congressional elections of 1996. Economics Letters, 58(2), 211–215. CrossRefGoogle Scholar
  16. Depken, C., & LaFountain, C. (2006). Fiscal consequences of public corruption: empirical evidence from state bond ratings. Public Choice, 126(1), 75–85. CrossRefGoogle Scholar
  17. Ehrlich, I., & Lui, F. T. (1999). Bureaucratic corruption and endogenous economic growth. Journal of Political Economy, 107(S6), S270–S293. CrossRefGoogle Scholar
  18. Fisman, R. (2001). Estimating the value of political connections. American Economic Review, 91(4), 1095–1102. CrossRefGoogle Scholar
  19. Fisman, R., & Svensson, J. (2005). Are corruption and taxation really harmful to growth? Firm level evidence. Journal of Development Economics, 83(1), 63–75. CrossRefGoogle Scholar
  20. 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. CrossRefGoogle Scholar
  21. 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. CrossRefGoogle Scholar
  22. Glaeser, E. L., & Saks, R. E. (2006). Corruption in America. Journal of Public Economics, 90(6–7), 1053–1072. CrossRefGoogle Scholar
  23. Glaeser, E., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2004). Do institutions cause growth? Journal of Economic Growth, 9(3), 271–303. CrossRefGoogle Scholar
  24. Goel, R. K., & Nelson, M. A. (1998). Corruption and government size: a disaggregated analysis. Public Choice, 97(1–2), 107–120. CrossRefGoogle Scholar
  25. Grier, K. (1989). Campaign spending and Senate elections, 1978–1984. Public Choice, 63(3), 201–219. CrossRefGoogle Scholar
  26. Hausman, J., Stock, J. H., & Yogo, M. (2005). Asymptotic properties of the Hahn-Hausman test for weak instruments. Economics Letters, 89(3), 333–342. CrossRefGoogle Scholar
  27. Huntington, S. P. (1968). Political order in changing societies. New Haven: Yale University Press. Google Scholar
  28. Johnson, S., Kaufmann, D., & Shleifer, A. (1997). The unofficial economy in transition. Brookings Papers on Economic Activity, 28(2), 159–221. CrossRefGoogle Scholar
  29. Kocherlakota, N., & Yi, K.-M. (1995). Can convergence regressions distinguish between exogenous and endogenous growth models? Economics Letters, 49(2), 211–215. CrossRefGoogle Scholar
  30. Kousser, J. M. (1999). Colorblind injustice: minority voting rights and the undoing of the second reconstruction. Chapel Hill: University of North Carolina Press. Google Scholar
  31. Leff, N. H. (1964). Economic development through bureaucratic corruption. American Behavioral Scientist, 82(2), 337–341. Google Scholar
  32. 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. CrossRefGoogle Scholar
  33. 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. Google Scholar
  34. Lui, F. T. (1985). An equilibrium queuing model of bribery. Journal of Political Economy, 93(4), 760–781. CrossRefGoogle Scholar
  35. Mankiw, N. G., Romer, D., & Weil, D. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107(2), 407–437. CrossRefGoogle Scholar
  36. Mauro, P. (1995). Corruption and growth. Quarterly Journal of Economics, 110(3), 681–712. CrossRefGoogle Scholar
  37. McQuinn, K., & Whelan, K. (2007). Solow (1956) as a model of cross country growth dynamics. Oxford Review of Economic Policy, 23(1), 45–62. CrossRefGoogle Scholar
  38. Moreira, M. J. (2003). A conditional likelihood ratio test for structural models. Econometrica, 71(4), 1027–1048. CrossRefGoogle Scholar
  39. Munnell, A. (1990). Why has productivity growth declined? Productivity and public investment. New England Economic Review, (January), 3–22. Google Scholar
  40. Murphy, K., Shleifer, A., & Vishny, R. (1991). The allocation of talent: Implications for growth. Quarterly Journal of Economics, 106(2), 503–530. CrossRefGoogle Scholar
  41. Murphy, K., Shleifer, A., & Vishny, R. (1993). Why is rent-seeking so costly to growth? American Economic Review, 83(2), 409–414. Google Scholar
  42. Myrdal, G. (1968). Asian drama. New York: Random House. Google Scholar
  43. New York Times Editors 2009. What’s Up With New Jersey? Resource Document., New York Times, Accessed 6 August, 2009.
  44. North, D. (1990). Institutions, institutional change, and economic performance. Cambridge: Cambridge University Press. Google Scholar
  45. Olken, B. A. (2007). Monitoring corruption: evidence from field experiments in Indonesia. Journal of Political Economy, 115(2), 417–452. CrossRefGoogle Scholar
  46. Olson, M. (2000). Power and prosperity: outgrowing communist and capitalist dictatorships. New York: Basic Books. Google Scholar
  47. 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.
  48. Renshaw, V., Trott, E. A., & Friedenberg, H. L. (1988). Gross state product by industry, 1963–1986. Survey of Current Business, 68(March), 30–46. Google Scholar
  49. Rose-Ackerman, S. (1978). Corruption: a study in political economy. New York: Academic Press. Google Scholar
  50. 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. Google Scholar
  51. Shleifer, A., & Vishny, R. (1993). Corruption. Quarterly Journal of Economics, 108(3), 599–617. CrossRefGoogle Scholar
  52. Solow, R. (2000). Perspectives on growth theory (2nd edn.). Oxford: Oxford University Press. Google Scholar
  53. Staiger, D., & Stock, J. H. (1997). Instrumental variables regression with weak instruments. Econometrica, 65(3), 557–586. CrossRefGoogle Scholar
  54. Stock, J. H., & Yogo, M. (2002). Testing for weak instruments in linear IV regression. NBER working paper T0284. Google Scholar
  55. Stratmann, T. (1995). Campaign contributions and congressional voting: does the timing of contributions matter? The Review of Economics & Statistics, 77(1), 127–136. CrossRefGoogle Scholar
  56. Stratmann, T. (1998). The market for congressional votes: is timing of contributions everything? Journal of Law and Economics, 41(1), 85–113. CrossRefGoogle Scholar
  57. Svensson, J. (2003). Who must pay bribes and how much? Quarterly Journal of Economics, 118(1), 207–230. CrossRefGoogle Scholar
  58. Svensson, J. (2005). Eight questions about corruption. Journal of Economic Perspectives, 19(3), 19–42. CrossRefGoogle Scholar
  59. Tarr, G. A. (2000). Understanding state constitutions. Princeton: Princeton University Press. Google Scholar
  60. 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. Google Scholar
  61. 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. Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  • Noel D. Johnson
    • 1
    Email author
  • Courtney L. LaFountain
    • 2
  • Steven Yamarik
    • 3
  1. 1.Department of Economics and Mercatus CenterGeorge Mason UniversityArlingtonUSA
  2. 2.Center for Economics, Applied Research and Methods TeamUS Government Accountability OfficeWashingtonUSA
  3. 3.Department of EconomicsCalifornia State University at Long BeachLong BeachUSA

Personalised recommendations