What is the relationship between corruption and development?

Through several data visualizations, this article explores how corruption relates to human development.

The first visualization shows the cross-country relationship between development (as measured by the United Nations Human Development Index) and corruption (as measured by Transparency International's Corruption Perception Index).

As we can see, countries that score higher in the Corruption Perception Index (i.e., countries seen as less corrupt) tend also to have better scores in the Human Development Index.

What is the relationship between education and corruption?

The relationship in the visualization above is just a correlation: many factors drive corruption and development simultaneously. Education is an important case in point.

The next scatter plot provides evidence of the cross-country relationship between educational attainment and corruption. The horizontal axis measures corruption using Transparency International's Corruption Perception Index, and the vertical axis measures average years of schooling.

Again, there is a strong positive relationship: countries where people are more educated tend to have better scores in the Corruption Perception Index.

Several academic studies have tried to establish the extent to which this relationship is causal. Glaeser and Saks (2006), for example, show that within the US, states that are better educated tend to be less corrupt.[1] Notably, they show that this relationship holds even when using historical factors like Congregationalism in 1890 as a proxy for the current levels of schooling. In other words, they find that historical education levels predict differences in corruption levels across States several generations later. This is consistent with other studies that support the theory that voters with more education tend to be more willing and able to monitor public employees and to take action when these employees violate the law.

What is the relationship between corruption and accountability?

One of the most widely accepted mechanisms of controlling corruption is to ensure that those entrusted with power are held responsible for reporting their activities. This is the idea behind so-called “accountability” measures against corruption.[2]

The visualization shows the cross-country relationship between corruption and accountability. Here, corruption is measured as the share of people who admit having paid bribes in the past 12 months (as per the estimates from the Global Corruption Barometer), and accountability is measured by the Accountability Transparency Index developed by Williams (2015).[3] This index is constructed from several underlying indicators that provide information about the extent of free media, fiscal transparency, and political constraints.

As we can see, people are less likely to pay bribes in countries with stronger institutions supporting accountability.

Ferraz and Finan (2011) show there is evidence that this relationship is causal.[4] Specifically, they show that electoral accountability causally affects the corruption practices of incumbent politicians in Brazil. There is significantly less corruption in municipalities where mayors can run for reelection, and the positive effect of accountability via reelection is more pronounced among municipalities with less access to information and where the likelihood of judicial punishment is lower.

How effective are top-down audits in reducing corruption?

A common policy prescription to fight corruption is to increase monitoring and punishments. The logic supporting such policies is straightforward: better monitoring and harsher punishments increase the expected cost of acting corruptly, so people rationally choose not to break the rules.

To test how much monitoring and punishments effectively reduce corruption, economists often rely on “policy experiments”, where they administer these policies to “treatment groups”. Olken (2007) follows this approach, increasing the probability of central government audits from 4 percent to 100 percent (the 'policy treatment') in the context of Indonesian village road projects.[5]

The study compares the outcomes for villages that received this intervention with those that did not and finds that audits significantly reduced missing expenditures, as measured by discrepancies between official project costs and independent engineers’ estimates. The following visualization summarizes these results. The height of the bars shows the percentage of expenditures that engineers found missing.

As we can see, missing expenditures were much lower in villages where audits were certain.

The study provides further evidence of the extent to which officials in charge of road projects responded to private incentives: it finds that (i) audits were most effective when officials faced elections soon, and (ii) village elites shifted to nepotism (the practice of hiring family members), which is a form of corruption that was harder for audits to detect.

Effect of audits on missing expenditures in an Indonesian Randomized Control Trial – Figure 2 in J-pal Policy Briefcase (2012)[6]

How important is the link between cultural norms and corruption?

A study by Fisman and Miguel (2007) shows that diplomats from countries where corruption perception is low (e.g., Denmark) seem to be less likely to break parking rules abroad, even in situations with no legal consequences.[7]

Fisman and Miguel (2007) show that the positive correlation between corrupt behavior by diplomats “abroad” and corruption perception “at home” remains after controlling for factors such as national income in the diplomats’ home country or the diplomats’ salaries. This evidence suggests that cultural norms are one factor that affects corrupt behavior.

Endnotes

[1] Glaeser, E. L., & Saks, R. E. (2006). Corruption in America. Journal of public Economics, 90(6), 1053-1072.

2] [Transparency International defines accountability as "the concept that individuals, agencies and organisations (public, private and civil society) are held responsible for reporting their activities and executing their powers properly."

[3] Williams, A. (2015). A global index of information transparency and accountability. Journal of Comparative Economics, 43(3), 804-824.

[4] Ferraz, C., & Finan, F. (2011). Electoral accountability and corruption: Evidence from the audits of local governments. The American Economic Review, 101(4), 1274-1311.

[5] Olken, Benjamin A. (2007). "Monitoring Corruption: Evidence from a Field Experiment in Indonesia." Journal of Political Economy 115(2): 200-249.

[6] This Policy Briefcase was issued in March 2008, and revised in May 2012. The data comes from Olken, Benjamin A. 2007. "Monitoring Corruption: Evidence from a Field Experiment in Indonesia." Journal of Political Economy 115(2): 200-249.

[7] Fisman, R., & Miguel, E. (2007). Corruption, norms, and legal enforcement: Evidence from diplomatic parking tickets. Journal of Political Economy, 115(6), 1020-1048.

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This page was imported from Our World in Data. “What is the relationship between corruption and development?” by Esteban Ortiz-Ospina, published by Our World in Data under CC BY 4.0. Changed here: set as a page, its interactive charts shown as pictures. Data from third parties keeps its own licence.

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