Dimensions of economic freedom and cross-country corruption

Document Type

Article

Publication Date

2025

Department/School

Economics

Publication Title

Journal of Regional Analysis & Policy

Abstract

This study contributes to the empirical literature on the nexus between economic freedom and corruption in the consideration of different measures of economic freedom and corruption. Our empirical results across countries and accounting for possible reverse feedbacks, consistently show that greater economic freedom lowered corruption across alternative corruption measures. This is true when economic glob- alization is used as an alternative indicator of economic freedom. In addition, when a hard proxy for economic freedom in the form of the age of the central bank (also capturing the longevity of economic institutions) is used, the negative effect on corruption holds, albeit with somewhat weaker statistical support. Larger government size lowered corruption, a finding consistent with better enforcement with larger governments reducing corruption, rather than with greater bureaucracy increasing corruption. The influences of democracy (including spatial democracy) and ethnic fractionalization did not significantly impact corrupt activities, although there was some support for more prosperous countries with a greater share of the Protestant population being less corrupt. Finally, former colonies were found to be more corrupt in a majority of the cases, while the reverse was true for countries experiencing more coups. A novel finding is the pronounced impact of coups on grand corruption. Another insight is that political institutions in the form of democracy are ineffective, but economic institutions in the form of the age of the central bank play a significant role.

Comments


J. Saunoris is a faculty member in EMU's Department of Economics.

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