Accountability and Corruption : Political Institutions Matter

The results of a cross-country empirical analysis suggest that political institutions are extremely important in determining the prevalence of corruption: democracy, parliamentary systems, political stability, and freedom of the press are all associated with lower corruption.Using a cross-country panel, Lederman, Loayza, and Soares examine the determinants of corruption, paying particular attention to political institutions that increase political accountability. Previous empirical studies have not analyzed the role of political institutions, even though both the political science and the theoretical economics literature have indicated their importance in determining corruption.The main theoretical hypothesis guiding the authorsi empirical investigation is that political institutions affect corruption through two channels: political accountability and the structure of the provision of public goods.The results suggest that political institutions are extremely important in determining the prevalence of corruption: democracy, parliamentary systems, political stability, and freedom of the press are all associated with lower corruption. In addition, the authors show that common findings of the earlier empirical literature on the determinants of corruption related to openness and legal traditionoacute;do not hold once political variables are taken into account.This paper - a product of the Office of the Chief Economist, Latin America and the Caribbean Region - is part of a larger effort to conduct research on pressing policy issues in the region. The authors may be contacted at dlederman@worldbank.org or nloayza@worldbank.org