Is Corruption Contagious? An Econometric Analysis

Abstract

In this paper, I analyze how corruption in one country may be affected by its neighbors' corruption. It seeks to explain why corruption is perpetuating in large geographical areas populated by developing countries despite anticorruption efforts made in the single country. In our empirical approach, we capture the spatial dependency by regional corruption. Three main techniques are used: spatial autocorrelation tests, GMM and three stage least squares. Our results show that, a lower regional corruption (as measured by the average of the level of corruption in one country's neighbors) is associated with a lower level of national corruption. Among the potential mechanisms explaining this correlation, the level of economic development (GDP per capita) seems to be the most important. Foreign aid and trade openness show less clear results. Noneconomic mechanisms such as cross-country contagion processes of voice expressions and demands on accountability are other possible transmission mechanisms.

Keywords: Corruption, economic development, trade, persistence, political factors, social factors

JEL Classification: H1, O10, O2, Z13