Corruption, Democracy, and Economic Growth

Abstract

Scholars have long suspected that political processes such as democracy and corruption are important factors in determining economic growth. Studies show, however, that democracy has only indirect effects on growth, while corruption is generally accepted by scholars as having a direct and negative impact on economic performance. We argue that one of democracy's indirect benefits is its ability to mitigate the detrimental effect of corruption on economic growth. Although corruption certainly occurs in democracies, the electoral mechanism inhibits politicians from engaging in corrupt acts that damage overall economic performance and thereby jeopardize their political survival. Using time-series cross-section data for more than 100 countries from 1982–97, we show that corruption has no significant effect on economic growth in democracies, while non-democracies suffer significant economic harm from corruption.