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Corruption, regime type, and economic growth

Author: ILAN ALON, SHAOMIN LI AND JUN WU
Published in PFM, Vol. 16 No. 4

While prevailing wisdom suggests that less corrupt and more democratic countries perform better economically, the existing literature is, at best, inconsistent. We build a theory that links corruption and regime type to economic growth and test it on 158 countries, using multiple databases including Polity IV, transparency international, and the World Bank. In this way, we are able to show that under autocracy, corruption is less harmful to economic growth than under anocracy, thereby, resolving some of the inconsistent and contradictory results of the aforementioned literature linking corruption to economic growth. The article shows that democracies have the lowest level of corruption, while autocracies outperform anocracies economically because they embed corruption more efficiently. Policies should minimize disruptions and efficiency losses caused by corruption during the transition from autocracy to democracy.

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