Abstract:

This paper examines the impact of corruption on democracy. Using recent developments in panel data causality econometrics, it breaks democracy down into different components and examines the types of the relationship. Based on a sample of 99 developed and developing countries, from 1985 to 2017, results show that Control of Corruption leads to a higher quality of democracy. Regarding the estimated coefficients of the components of democracy, they are significant at the 1% level and their signs and levels are in accordance with expectations except in a few cases. Overall, the results add to the literature in three respects: i) corruption has a causal effect on democracy and, hence, single equation estimation may pose a problem, ii) the assumption of the linearity of the relationships between control of corruption and democracy is also possibly problematic and iii) the channels of transmission of the effects of corruption on democracy can be diverse. Disentangling them is useful from a policy perspective.