On the macroeconomics of corruption

Costas Azariadis and Yannis Ioannides

Indian Economic Review, 2023, vol. 58, issue 1, No 8, 105-147

Abstract: Abstract We examine the impact of culture on the joint evolution of corruption and per capita GDP by augmenting the standard lifecycle model of capital accumulation with two endogenous state variables that describe institutions and social norms, and by two cultural parameters that proxy for individual propensity to anti-social behavior, and for group individualism or collectivism. We explore in an explicitly macroeconomic setting alternative political selection processes over institutions, defined over a one-dimensional agenda that pits “stronger” against “weaker” property rights. For societies that share the same economic fundamentals but differ in culture, our main theoretical finding is the following: there exist cultural convergence clubs separated by a barrier that corresponds to a bifurcation in the space of culture and initial social norms. Societies with collectivist cultures and corruption-tolerant norms behave very differently from all others. Outcomes in those societies feature: (a) highly nonlinear GDP and corruption dynamics; (b) dominant roles for culture and social norms as determinants of institutional quality and growth; (c) majorities that favor diluted property rights; and (d) slow convergence to balanced growth paths. These results agree with illustrative scatter plots with international data for several alternative measures of corruption or culture, raising the likelihood that formal econometric tests of them will prove fruitful.

Keywords: Growth; Convergence clubs; 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: 2023
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DOI: 10.1007/s41775-023-00165-0

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