New perspectives on corruption contagion

John O'Trakoun

The Journal of International Trade & Economic Development, 2017, vol. 26, issue 5, 552-565

Abstract: Is corruption within one country affected by corruption within another? Few studies have examined this question in detail due to the difficulty of measuring corruption and paucity of consistent data over an adequate time span. I use a cross-country panel data-set spanning 1995–2014 to examine how domestic corruption reacts to the culture of corruption amongst a country's regional neighbors. I find evidence that a reduction in regional corruption can actually lead to a worsening of corruption within a country, and vice versa. If in an open economy, regional graft lowers the level of income that a rent-seeking government can tax, a reduction in regional corruption can increase the marginal benefit of imposing a more extractive domestic policy by increasing the pool of exploitable funds. My results suggest that corruption will be an enduring institution in a more interconnected world.

Date: 2017
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DOI: 10.1080/09638199.2017.1281340

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