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MOST: Economic Policy in Transitional Economies

, Volume 11, Issue 4, pp 359–392 | Cite as

Seeds of Corruption – Do Market Institutions Matter?

  • Harry G. Broadman
  • Francesca Recanatini
Article

Abstract

Ten years into the transition process, corruption is now recognized to be a pervasive phenomenon thatcan seriously jeopardize the best intentionedreform efforts. Because of the complex anddeep political economy dynamics surroundingthe process transition economies areundergoing it is essential for policy-makersto understand the causes of corruption. Thispaper develops an integrated analyticalframework of the role basic marketinstitutions play as determinants ofrent-seeking and illicit behavior intransition economies. Using data onlyrecently available on the incidence ofcorruption and institutional development inthese economies, we provide preliminaryevidence on both the systemic links betweendevelopment of market institutions andincentives for corruption and the relativeimportance of such institutions. The mainlesson from our analysis is that awell-established system of marketinstitutions – one characterized by clear andtransparent rules, fully functioning checksand balances, including strong enforcementmechanisms, and a robust competitiveenvironment – reduces rent-seekingopportunities and, in turn, the incentives forcorruption. The empirical results suggestthat high barriers to new business entrantsand soft budget constraints on incumbent firmsare particularly important institutionalfactors engendering opportunities andincentives for corruption. As in otherstudies, the empirical results also supportthe notion that economic development andmaturation of democratic processes both tempercorruption, as does, to a lesser extent,openness to trade.

corruption institutional development transition 

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Copyright information

© Kluwer Academic Publishers 2001

Authors and Affiliations

  • Harry G. Broadman
    • 1
  • Francesca Recanatini
    • 2
  1. 1.The World BankEurope and Central Asia OperationsWashington, DC
  2. 2.The World BankWorld Bank InstituteWashington, DC

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