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Live free or bribe: On the causal dynamics between economic freedom and corruption in U.S. states

Nicholas Apergis (), Oguzhan Dincer and James Payne ()

European Journal of Political Economy, 2012, vol. 28, issue 2, 215-226

Abstract: We investigate the relationship between economic freedom and corruption using data from U.S. states covering almost a quarter of a century. Our study advances the existing literature on several fronts. First, instead of using subjective cross-country corruption indices assembled by various investment risk services, we use a more objective measure of corruption: the number of government officials convicted in a state for crimes related to corruption. Second, unlike previous studies, we exploit both time series and cross-sectional variation in the data in the estimation of a panel error correction model. The panel error correction model results show that in the long-run economic freedom, per capita income, and education have a negative and statistically significant impact on corruption whereas income inequality has a positive and statistically significant impact. The causality tests associated with the panel error correction model reveal bidirectional causality between economic freedom and corruption in both the short-run and long-run.

Keywords: Economic freedom; Corruption; Panel error correction model (search for similar items in EconPapers)
JEL-codes: H1 H3 K4 (search for similar items in EconPapers)
Date: 2012
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