Corruption Around the World: Evidence from a Structural Model
31 Pages Posted: 13 Jul 2004
Date Written: June 8, 2004
The causes and consequences of corruption have attracted much attention in recent years by both academics and policy makers. Central in the discussion on the impact of corruption are perception-based indices. While informative, these indices are ordinal in nature and hence provide no indication of how much economic loss is attributed to corruption. Arguably, this shortcoming is rooted in the lack of a structural model. This is the issue addressed in this paper. By treating corruption as a latent variable that is directly related to its underlying causes, a cardinal index of corruption is derived for approximately 100 countries. This allows us to compute a measure of the losses due to corruption as a percentage of GDP per capita.
Keywords: Corruption, Latent Variables, Economic Development, Rule of Law
JEL Classification: H10, O1, K49, C39
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