Two birds with one stone: Reducing corruption raises national income

Abstract

Objective: This article estimates the causal effect of corruption reform on economic growth across a sample of 122 countries from 1980 to 2015. Methods: We first identify countries that experienced large and sustained increases in corruption control, we refer this group as the treatment group. We then utilize two empirical estimation techniques to estimate the causal effect of corruption on economic growth—matching methods and a doubly robust, difference-in-difference, event study model. Results: We find that sustained corruption reform leads to dramatic increases in real Gross Domestic Product (GDP). Across a variety of methods, the effect at 10 years after reform is on the order of a 20 percent to 25 percent increase in average living standards. Conclusions: Even though corruption is often cited as a fundamental obstacle to economic development, lasting anti-corruption reform is relatively rare. We find, however, that the benefits of this type of reform might be significantly higher than policymakers believe. Thus, successful reform brings a win–win outcome of less corruption and higher average incomes.