Does Power Equal Corruption? An Empirical Inquiry

The recent empirical literature on corruption has identified a long list of variables that correlate significantly with various measures of corruption.  Several of these variables, namely income per capita, mainly Protestant population, colonial heritage, decades-long tradition of democratic institutions, and political instability were distinguished as robust determinants based on Leamer’s Extreme Bounds Analysis.  The latter two variables are of particular interest to our research as we argue that they ultimately depend on the degree of power concentrated in the hands of a nation’s leadership.  The established democratic institutions indicate that the system has a significant degree of power sharing.  In contrast, political instability, at least in the short run, may be the result of a weak leadership.  Hence, a higher degree of power concentration can raise or lower corruption depending on which of the above two factors dominates.

In addition, theoretical models have provided conflicting conclusions about the effect of concentration of power on the overall level of corruption.  In this paper we attempt to resolve this theoretical and empirical ambiguity by performing a cross-country regression analysis of the effect of an increased concentration of political power on the general level of corruption.  We use 2SLS to alleviate the problems of endogeneity.  In short, this work ties together the relatively scarce theoretical literature with available empirical studies and provides additional information to help policymakers successfully fight corruption, especially in developing countries.