Determinants of Corruption: A Cross-National Analysis

Article excerpt

ABSTRACT: The background literature survey points to the fact that the degree of corruption is a function of multiple factors of a society. Thus, it is imperative to take a more comprehensive and cross-disciplinary approach to understand the complete picture of corruption. The research findings indicate economic freedom, socio-political stability, tradition of law abidance and national cultures are the major variables that dictate the degree of corruption. This study expands the existing knowledge about the determinants of corruption and provides incremental information to help the policy makers fight against this cancerous social disease.

INTRODUCTION

The worldwide spread of corruption has been recognized as one of the darker sides of globalization. As Glynn, Kobrin, and Naim (1997) argue, corruption impedes economic development and distorts international trade and investment flow. It also undermines the very base of multilateralism, which is the backbone of free world trade. Recently, there has been a dramatic increase in the number of cross-border mergers and acquisitions (M&As) and strategic alliances. The strategic alliances and cross-border M&As depend more on mutual trust than on the traditional firm. Different norms and standards of business ethics can significantly reduce the level of this mutual trust and belief, preventing the establishment and maintenance of internationally accepted "rules of the game." This is the reason why so many international agencies, including the World Bank and OECD, denounce corruption as one of the major problems faced by a globalized world economy, and recently started to take the initiative in combating corruption.

However, fighting against corruption is not an easy task because corruption is a very complex and intertwined social phenomenon. A consensus from the survey of the previous literature points to the fact that the degree of corruption is a function of multiple factors, including almost every aspect of society. Given this, it is surprising to find a paucity of cross-disciplinary research that simultaneously examines the various aspects of corruption. Thus, the main thrust of this research is to take a more comprehensive and cross-disciplinary approach to understand the major determinants of this multifaceted social and economic phenomenon.

BACKGROUND RESEARCH

Corruption has been defined in many different ways. Even though many articles devote their entirety to this subject alone (Heidenheimer, Johnston and Levine, 1989; Gardiner, 1993; Dolan, McKeown & Carlson, 1988), there is little consensus about its definition. However, Johnston (1996) provides an excellent typology for the definition of corruption. He identifies two different strands in the literature. The first strand (Nye, 1967; Friedrich, 1966; Van Klaveren, 1989; Heidenheimer, 1989) focuses on the behavioral aspects of corruption. These behavior-focused definitions generally hold the notion that corruption is the abuse of public office, powers, or resources for private gain. The second strand focuses more on principal-agent-client relationships (e.g., Rose-Akerman, 1978; Klitgaard, 1988). These researchers pay more attention to the interactions among the parties involved: a principal (an individual who is in charge of carrying out a public function), an agent (an individual who actually performs the operation of the agency), and a client (a private individual with whom the agent interacts). Even if the second approach provides us with a clearer picture of the complex nature of corruption, it is very difficult to draw an operational definition of corruption from this approach. Thus, we decided to use the first approach, which offers the most commonly accepted operational definition of corruption: "the abuse of public power for private benefit"

There is a proliferation of literature on corruption in general. However, many researchers recently pay a greater attention to the causes and antecedents of corruption in an attempt to develop effective tools to fight against it. …