Corruption and the Effects of Economic Freedom

Pieroni, Luca and d'Agostino, Giorgio (2009): Corruption and the Effects of Economic Freedom.

Abstract

The predictions that economic freedom is beneficial in reducing corruption have not been found to be universally robust in empirical studies. The present work reviews this relationship by using firms' data in a cross-country survey and argues that approaches using aggregated macro data have not been able to explain it appropriately. We model cross-country variations of the microfounded economic freedom-corruption relationship using multilevel models. Additionally, we analyze this relationship by disentangling the determinants for several components of economic freedom because not all areas affect corruption equally. The results show that the extent of the macro-effects on the measures of (micro)economic freedom for corruption, identified by the degree of economic development of a country, can explain why a lack of competition policies and government regulations may yield more corruption. Estimations for Africa and transition economy subsamples confirm our conjectures.

• Item Type: MPRA Paper
• Language: English
• Keywords: Corruption, Economic freedom, Multilevel models
• Subjects: H - Public Economics > H1 - Structure and Scope of Government > H10 - General; K - Law and Economics > K2 - Regulation and Business Law > K20 - General; H - Public Economics > H5 - National Government Expenditures and Related Policies > H50 - General; H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O50 - General

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