Do the Effects of Corruption upon Growth Differ Between Democracies and Autocracies?

• Author: Andreas Assiotis,Kevin Sylwester
• Published date: 01 August 2014
• Date: 01 August 2014
• DOI: http://doi.org/10.1111/rode.12104

Do the Effects of Corruption upon Growth Differ

Between Democracies and Autocracies?

Andreas Assiotis and Kevin Sylwester*

Abstract

Many studies examining whether corruption lowers economic growth do not consider if the effects of cor-

ruption differ across countries. Whether corruption produces the same effects everywhere or whether its

effects are conditional on some country characteristics are important questions. We investigate the associa-

tion between corruption and growth, where the marginal impact of corruption is allowed to differ across

democratic and nondemocratic regimes. Using cross-country, annual data from 1984 to 2007, we regress

growth on corruption, democracy and their interaction. We find that decreases in corruption raise growth

but more so in authoritarian regimes. Possible reasons are that in autocracies corruption causes more

uncertainty, is of a more pernicious nature, or is less substitutable with other forms of rent seeking.

1. Introduction

Understanding the vast differences in income levels and economic growth rates has

generated many explanations for these differences. One explanation is that some gov-

ernments are more corrupt as public officials abuse their power in order to extract

bribes. Such abuse results in personal gain for such officials at the expense of the

populace. Since such practices dissuade productive activities, they could lower growth

(Svensson, 2005). Although corruption has not always been viewed negatively, recent

studies find that corruption lowers income (Shleifer and Vishny, 1993; Mo, 2001;

Mauro, 1995). We also consider the effects of corruption upon growth but we allow

the effects of corruption to differ across political regimes. Corruption might affect

growth differently in democracies relative to autocracies as we explain in section 3.

Past research has considered links between political regime and corruption, but such

research has often considered whether democratization leads to more or less corrup-

tion. Instead, we consider whether the type of political regime influences the effects of

corruption upon growth.

2. Literature Review

Scholars have long debated how corruption affects economic growth. Leff (1964) and

Huntington (1968) argue that corruption increases growth by helping agents avoid

bureaucratic delays. In contrast, Tanzi and Davoodi (2000) view corruption as lower-

ing growth. Mauro (1995) explains the lower growth through corruption’s negative

effect on investment.1More recent studies allow the effects of corruption to differ

across country characteristics. Méon and Sekkat (2005) allow corruption to affect

* Assiotis: Department of Economics, University of Cyprus, 1678 Nicosia, Cyprus. Tel: +357-2250-0807;

Fax: +357-2250-0082; E-mail: assiotis.andreas@ucy.ac.cy. Sylwester: Southern Illinois University

Carbondale, Carbondale, IL 62901, USA. The authors would like to thank Elias Papaioannou for much

helpful feedback and also thank one referee for comments that have improved the article. Of course, all

errors are the responsibility of the authors.

Review of Development Economics, 18(3), 581–594, 2014

DOI:10.1111/rode.12104

© 2014 John Wiley & Sons Ltd