On the Impact of Digital Technologies on Corruption: Evidence from U.S. States and Across Countries

44 Pages Posted: 21 May 2008 Last revised: 31 Jul 2012

See all articles by Thomas Barnebeck Andersen

Thomas Barnebeck Andersen

University of Southern Denmark - Department of Business and Economics

Jeanet Sinding Bentzen

University of Copenhagen - Department of Economics

Carl‐Johan Dalgaard

University of Copenhagen - Department of Economics

Pablo Selaya

University of Copenhagen

Date Written: April 1, 2008

Abstract

We hypothesize that the spread of the Internet has reduced corruption, chiefly through two mechanisms. First, the Internet facilitates the dissemination of information about corrupt behavior, which raises the detection risks to shady bureaucrats and politicians. Second, the Internet has reduced the interface between bureaucrats and the public. Using cross-country data and data for the U.S. states, we test this hypothesis. Data spans the period during which the Internet has been in operation. In order to address the potential endogeneity problem, we develop a novel identification strategy for Internet diffusion. Digital equipment is highly sensitive to power disruption: it leads to equipment failure and damage. Even very short disruptions (less than 1/60th of a second) can have such consequences. Accordingly, more frequent power failures will increase the user cost of IT capital; either directly, through depreciation, or indirectly, through the costs of protective devises. Ceteris paribus, we expect that higher IT user costs will lower the speed of Internet diffusion. A natural phenomenon which causes a major part of annual power disruptions globally is lightning activity. Lightning therefore provides exogenous variation in the user cost of IT capital. Based on global satellite data from the U.S. National Aeronautics and Space Administration (NASA), we construct lightning density data for a large cross section of countries and for the U.S. states. We demonstrate that the lightning density variable is a strong instrument for changes in Internet penetration; and we proceed to show that the spread of the Internet has reduced the extent of corruption across the globe and across the U.S. The size of the impact is economically and statistically significant.

Keywords: public corruption, internet, information

JEL Classification: K4, O1, H0

Suggested Citation

Andersen, Thomas Barnebeck and Bentzen, Jeanet and Dalgaard, Carl-Johan Lars and Selaya, Pablo, On the Impact of Digital Technologies on Corruption: Evidence from U.S. States and Across Countries (April 1, 2008). Univ. of Copenhagen Dept. of Economics Discussion Paper No. 08-11. Available at SSRN: https://ssrn.com/abstract=1135241 or http://dx.doi.org/10.2139/ssrn.1135241

Thomas Barnebeck Andersen (Contact Author)

University of Southern Denmark - Department of Business and Economics ( email )

Campusvej 55
DK-5230 Odense, 5000
Denmark

Jeanet Bentzen

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Carl-Johan Lars Dalgaard

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark
+45 3532 4407 (Phone)

Pablo Selaya

University of Copenhagen ( email )

Department of Economics
Øster Farimagsgade 5
Copenhagen, 1353
Denmark

HOME PAGE: http://www.econ.ku.dk/pabloselaya

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