Discussion Paper 2010-09
JEL Classifications: O40, O43, O57


Many studies find that corruption lowers economic growth. However, most of these studies do not consider whether the effects of corruption upon growth differ across countries. This paper investigates whether the association between corruption and economic growth differs between democracies and authoritarian regimes. Consider illegal corruption and legal lobbying, both forms of rent seeking, as imperfect substitutes. Suppose lobbying is easier to do in democracies. Then, lowering corruption in authoritarian regimes could have greater growth benefits because of the lower substitutability between corruption and lobbying in these countries. Using cross-country, annual data from 1984 to 2007, we regress economic growth on: the inverse of the level of corruption, the degree of democracy, and an interaction term combining the two. We find that coefficients are positive on the first two variables. However, the coefficient on the interactive term is negative, suggesting that the benefits upon growth of controlling corruption are actually greater in authoritarian regimes.