On the Dynamics of Corruption

Costas Azariadis and Yannis Ioannides

No 836, Discussion Papers Series, Department of Economics, Tufts University from Department of Economics, Tufts University

Abstract: To examine the joint evolution of corruption and per capita GDP, we augment the standard lifecycle model of capital accumulation by three endogenous state variables that describe institutions and culture, and by three fixed parameters that proxy for personal morality and social interactions. Institutions that regulate economic incentives are decided by majority vote over a binary agenda that pits “strong” against ‘weak” property rights. Culture consists of slow changing social conventions which generate behavioral norms in the public and private sectors. Norms spread consumption externalities that impact the occupational opportunities of current households, and become in turn a reflection of past household choices. Our main theoretical finding is that societies with collectivist cultures and corruptiontolerant norms behave very differently from the individualistic ones of neoclassical growth theory. Collectivist society features include: (a) highly nonlinear GDP and corruption dynamics; (b) dominant roles for culture and social norms as engines of institutional quality, corruption and growth; and (c) majorities that favor diluted property rights, thus splitting the world economy into individualistic and collectivist convergence clubs with two distinct stable long-run states. These hypotheses receive a fair amount of support from international data. Variations in social norms, culture and human capital typically explain more than half of the variance in per capita GDP across countries and time. Many alternative measures of culture seem to be highly significant determinants of corruption and institutional quality. The fact that we control for culture in many alternative ways supports our confidence in the largely favorable tests of our main hypotheses.

Keywords: growth; institutions; corruption; social norms; culture; voting; social interactions. (search for similar items in EconPapers)
JEL-codes: D70 E71 F43 O11 O43 O47 Z10 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-gro and nep-soc
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