Research

Abstract: How do political crises affect the interaction between economic and political outcomes? In this paper, we study one of the consequences of political turmoil by empirically examining whether the Arab Spring influenced the relationship between corruption and income inequality. Using panel data from 1996 to 2019 for the Middle East and North African (MENA) countries, we find that while corruption is positively associated with income inequality, the interaction term between corruption and the Arab Spring is negatively associated with income inequality. This result is consistent with the view that corruption has become more democratized after the Arab Spring. We use instrumental variable (IV) analysis to address potential endogeneity issues. Our findings suggest that not only studying the direct effects of political crises on economic and institutional variables is important, but studying their effects on shaping the association between economic and institutional variables can be insightful. 

Abstract: The election of corrupt politicians remains a crucial global problem, yet our knowledge regarding factors determining electorates' tolerance for corruption remains extremely limited. This paper explores individual characteristics and macroeconomic factors determining an individual's likelihood to (1) vote for her preferred political party even if that party was involved in a corruption scandal, and (2) abstain from voting even when an established non-corrupt party exists. I identify several individual characteristics, such as education and income levels, gender, employment status, political leaning, and trust in local media, and macroeconomic factors, such as income per capita, country-level corruption, and political rights, significantly influencing an individual's voting choice. A few implications emerge. Corruption can be self-sustaining and may undermine democracy by discouraging political participation. While education promotes political participation, it does not reduce citizens' tolerance for corruption by their preferred political parties. Corruption might widen income and gender inequality by lowering the political participation of the poor and women, and extreme political leaning can promote political corruption.

Abstract: While the importance of municipal bonds for the provision of public services is well-documented, the consequences of municipal bankruptcies remain understudied. We contribute to this literature by studying the effects of municipal bankruptcies on crime. Using the staggered difference-in-differences approach and agency-level crime data, we find that violent and property crime rates rise after successful (approved by the bankruptcy courts) Chapter 9 bankruptcy filings. The association between successful municipal bankruptcy and crime remains robust to alternative estimation methods, including a novel empirical technique that allows for the treatment effect heterogeneity and dynamics, and several robustness checks and falsification exercises. Our exploratory evidence suggests that the rise in crime rates is due to lower public safety expenditures. Our findings highlight the importance of efficient financial management for local government entities and the need for particular attention to law and order in the local jurisdiction going through bankruptcy.

Abstract: This paper studies the association between financial development, financial stability, and poverty for a sample of 109 developed and developing countries from 1995 to 2018. Most of the existing studies in this literature have focused on financial development, and only a few recent studies have looked at the effects of financial stability on poverty. However, none of the existing studies has looked at the interaction effect of the two on poverty. Our contribution to this literature is manifold. First and foremost, we investigate whether financial development and financial stability are substitutes or complements in reducing poverty and find evidence in favor of the former: Financial development has greater effects on poverty alleviation in a more fragile financial system and vice-versa. Second, using two different measures of financial stability, we show that financial stability is associated with lower levels of poverty. And finally, while previous studies have presumed that the effect of financial development on poverty is homogeneous at various levels of poverty, we show that financial development and financial stability both exert heterogeneous effects on poverty depending on the level of poverty considered.

Abstract: A growing strand of literature documents how historical agricultural and ecological factors continue to determine women's role and well-being in society through cultural transmission even today. Studies have shown that such factors are significantly associated with perceptions regarding women's right to jobs and their abilities as political leaders. However, scant attention has been paid to women's ability as business executives and their democratic rights. Using individual level observations from multiple waves of the World Values Survey, this paper investigates whether these historical and ecological factors can explain perceptions regarding women's democratic rights and their ability as business executives. Overall, our findings support the existing literature and show that historical agricultural and ecological factors (ancestral plough use, Neolithic transition, and ancestral resource endowments) have a much broader impact on women's rights and abilities in diverse contexts including the labor force, business, and politics. Given the robustness of this phenomenon, it calls for broad affirmative action favoring women in different social spheres. 

Abstract: Although the effects of corruption on bilateral trade are well-documented, its impact on the composition of trading partners remains unexplored. In this paper, we argue that corruption in a country imposes asymmetric costs on its trading partners depending on their characteristics. Consequently, as the level of corruption in a country changes, its trade flows from some of its trading partners change more than others, depending on their characteristics, changing the composition of its trading partners. We focus on two characteristics of trading partners: (1) the level of corruption and (2) membership in the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention). Using the gravity model, we find evidence of a negative assortative matching in international trade with respect to corruption. We find that corruption in a country is negatively associated with trade flows from high-corrupt countries and is positively associated with trade volume from signatories of the OECD convention. Our results suggest that future studies on this topic should consider controlling for institutional dissimilarities between the trading partners as it has implications for bilateral trade costs.

Abstract: This study adds to largely non-existent literature on corruption and foreign direct investment (FDI) in natural resources by examining the association between the two using a panel of 20 Latin American and Caribbean countries from 1995 to 2020. We find that higher levels of corruption are associated with lower levels of FDI in natural resources, supporting the “grabbing hand” or “sand-the-wheel” hypothesis. Further, we argue that during economic downturns and crises, corrupt agents are likely to use the prevalence of corruption to disregard laws to attract greater FDI in natural resources to compensate for the adversity brought about by hard times. Consistently, we find that while still detrimental to resource FDI, corruption's diminishing effects on resource FDI are much less pronounced during economic downturns and fiscal crises, with the latter measured by credit events leading to a reduction in the present value of the sovereign debt.

Abstract: This article discusses how the recent advances in Information and Communication Technologies (ICTs) can be used to fight corruption. It draws on the current literature to argue that ICTs can be used to reduce corruption in many ways. First, ICTs can be used to promote transparency that may lead to lower corruption. Second, they can be used for providing e-government services that may reduce or even eliminate the need for a direct interaction between the officials and the citizens, reducing the scope of extorting a bribe. Third, ICTs allow for both one-way and multi-way communications. With the recent advances in ICTs, it has become very difficult for the government to clamp down on multi-way communications, which does not only promote the sharing of information but also makes it easier for the like-minded people to come together and act against corruption. Finally, ICTs prevent the use of excessive force by the government by enabling citizens to share real time information using live videos providing anticorruption protests and movements an extra layer of security. The article provides a comprehensive review of the existing literature documenting the effects of various forms of ICTs on corruption.

Abstract: Despite various anti-corruption policies in place, the public service provision in most developing countries remains mired in corruption. In this chapter, we argue that a successful fight against corruption requires a thorough understanding of the processes involved in the provision of public services. We outline various processes involved in the delivery of public services and discuss how these processes can be susceptible to corrupt practices. Using a case study that uses information technology (IT), we outline some of the challenges that arise in designing and implementing system changes that modify these processes to reduce their vulnerability to corruption. We contend that simply being aware of the problems faced by the end-users, i.e., beneficiaries is not enough. It is crucial to seek and use the feedback from the insiders, i.e., government officials, who possess the best knowledge on how the loopholes in a system can be abused to obviate transparency and avoid accountability. For instance, while officials might make data entry errors, deliberately or not, citizens face the consequences of these errors suffering psychological distress and monetary expenses. The lack of accountability would compromise the ability of the IT-based systems to fight corruption. We conclude with some suggestions. 

Abstract: The literature examining the effect of institutions on the spread of conflict remains scarce despite 100 civilians being killed in armed conflicts every day as per United Nations statistics. We employ the two-part model to study the effect of institutions on the spread of conflict in 190 countries from 2000 to 2016. We find that a better rule of law lowers the spread of conflict by increasing the cost of violence for perpetrators. Next, conditional on the conflict being present, countries with weaker corruption control experience a lower spread of conflict. Consistent with the “grease the wheels” hypothesis, this finding suggests that victimized groups use bribery to protect themselves against violence. Finally, press freedom reduces the spread of conflict by promoting government accountability, with the effect being higher in countries with greater internet penetration. Our findings highlight the roles of the government and civil society in preventing the loss of lives due to conflicts.

Abstract: Outbreaks of infectious diseases bring behavior and policy responses into sharp focus since societies face acute constraints and uncertainties. This paper compares two infectious disease outbreaks: the Covid-19 pandemic and the 1665 London plague outbreak described by Daniel Defoe in A Journal of the Year of the Plague published in 1722. We compare three aspects: individual behavior, social behavior and governance and find striking similarities in behavior in spite of these events being separated by 350 years. We contend that the same models of behavior can be used to explain human responses during such outbreaks regardless of when they occur.

Abstract: Responses to the COVID-19 pandemic may leave many people behind through a variety of exclusion processes as basic information about the virus and its spread is shared with the public. We conduct a rapid virtual audit of pandemic related press briefings and press conferences issued by governments and international organizations in order to assess if responses have been inclusive to the hearing-impaired communities in low- and middle-income countries (LMICs). We analyze COVID-19 press conferences and press briefings issued during Feb–May 2020, for over 123 LMICs and for international organizations (e.g. the World Bank, the International Monetary Fund, the World Health Organization (WHO)). Our virtual audit shows that only 65% of countries have a sign language interpreter (SLI) present in COVID-19 press briefings and conferences. This number is smaller in low-income countries (41%) and Sub-Saharan African countries (54%). Surprisingly, none of the international organizations including the WHO has a SLI present during COVID-19 press briefings. We recommend all countries and international organizations to reconsider ways to make press conferences accessible to a wide audience in general, and to the hearing impaired communities in particular by including a SLI during their COVID-19 briefings, a primary step towards upholding the sustainable development pledge of “no one gets left behind.”

Abstract: This paper investigates the effects of reforms in different dimensions of the financial sector on corruption in a panel of 82 countries. It finds that several, but not all, of the policies targeted toward liberalizing financial sector reduce corruption. Specifically, entry barriers, directed credit, securities market development, and the extent of banking supervision are significantly negatively associated with corruption. The effects of reforms in different dimensions of the financial sector also depend on the quality of the governance (bad versus good governance) and whether the country is an advanced or a non‐advanced economy. Finally, a stronger democracy and better law and order are found to be associated with lower corruption.

Abstract: This paper investigates whether financial reforms promote entrepreneurship. Using a panel of 41 developed and developing countries from around the world, we find that financial sector reforms are positively associated with early-stage entrepreneurial activity. In a variety of robustness checks, including a falsification test, we fail to find the evidence that this relationship is driven due to the omission of unobserved, country-specific factors. Investigating the relationship between reforms in different dimensions of the financial sector and entrepreneurship, we find reforms in directed credit, credit controls, banking supervision, and international capital flows dimensions to be significantly associated with early-stage entrepreneurial activity.

Abstract: Homo economicus, the typical economic man, is a rational agent whose goal is to find the optimal solution to any problem. However, this may not be feasible in complex situations like the current global pandemic. We argue that in such environments where Knightian uncertainty plays a big role, the behaviour of countries, sectors of the economy, and individuals may be characterised by procedural rationality. Instead of focusing on the outcome, it is argued that the decision-maker draws upon similar experiences and follows a consistent procedure.

Abstract: This study explores the relationship between social media and democracy in a cross- section of over 125 countries around the world. We find the evidence of a strong, positive correlation between Facebook penetration (a proxy for social media) and democracy. We further show that the correlation between social media and democracy is stronger for low-income countries than high-income countries. Our lowest point estimates indicate that a one-standard deviation (about 18 percentage point) increase in Facebook penetration is associated with about 8-point (on a scale of 0–100) increase for the world sample and over 11 points improvement for low-income countries.

Abstract: This paper assesses the impact of financial reforms on corruption using a panel of 87 countries for 1984-2005. To account for the dynamic nature and high persistence of corruption, the paper employs the difference and system generalized method of moments (GMM) estimators. It finds that policy reforms targeted towards financial liberalization reduce corruption. This result is robust to the inclusion of a number of control variables and the choice of the GMM estimator. Interestingly, the financial liberalization index is found to be positively correlated with corruption though this relationship is not robust. The findings also indicate that legal origins do not impose a binding constraint on the effectiveness of financial reforms in reducing corruption.

Abstract: This paper examines the relationship between ecological endowments in antiquity and contemporary female to male sex ratios in the population. It is found that there are proportionately more missing women in countries whose ancestral ecological endowments were poorer. This relationship is shown to be strong even after ancestral plough use, the timing of the Neolithic Transition, and many other potentially confounding factors are controlled for. Similar results are also obtained using district-level data from India.

Abstract: This paper examines in what precise role -- as bribe takers, decision makers or as policy makers do women have an impact on corruption. Since much of the corruption literature is plagued either by the lack of instruments or weak instruments, this paper makes a methodological contribution by drawing inferences based on Moreira's (2003) conditional likelihood ratio approach. We provide robust evidence that women's presence in parliament has a causal and negative impact on corruption while other measures of female participation in economic activities are shown to have no effect. Further, this negative relationship between women's presence in government and corruption is also found to hold in a regional analysis of 17 European countries alleviating concerns that the relationship is driven by unobservable country-fixed characteristics. Finally, we show that this relationship does not disappear when women gain similarity in social status.

Abstract: In this paper we study the relationship between multi-way means of communication and corruption by exploring the link between social media and corruption. Using a cross-country analysis of over 150 countries, we document a robust and statistically significant negative relationship between Facebook penetration (a proxy for social media) and corruption. A falsification test for the relationship between Facebook penetration and corruption is also reported. We find that the relationship between Facebook penetration and corruption is strongest for the set of countries with low press freedom. Moreover, we find that independent of the level of press freedom, social media and press freedom exhibit complementarity in lowering corruption. Finally, our findings also confirm the negative correlation between internet penetration and corruption.

Abstract: While the role of cultural norms in determining corruption is well-explored in the empirical literature, the relationship between a specific aspect of culture, that is, individualism versus collectivism, and corruption is rather unexplored. This paper investigates the relationship between individualism/collectivism and corruption in a large cross-section of countries. To establish causality, the paper uses an index of historical prevalence of infectious diseases and a measure of genetic distance between the population in a country from that in the United States to instrument the individualism/collectivism variable. We find that more individualistic countries have lower levels of corruption (perception). This relationship is robust to the inclusion of a rich set of control variables and to the use of alternative measures of corruption.

Abstract: Although the research linking social media and corruption is still in infancy, it provides important insights. It has been shown that social media can prove to be an important tool in fighting corruption. At the same time, freedom on the net is under threat in many parts of the world with governments using a variety of methods, including designing vague and flexible security laws as well as employing technological means, to censor the content that can be shared and accessed by net users. This chapter discusses the implications that government control over information can have for the effects of social media on corruption. It suggests that freedom on the net and the anonymity of net users must be protected if the effects of social media on corruption are to be fully realized.