Corruption and the rule of law -

Abstract

This work empirically tests the impact of corruption on democracy through the “Rule of Law” mechanism. We investigate if a specific indicator of Democracy, say the “Rule of Law” changes, when corruption changes. We test this effect by running an empirical model, using panel data on 63 countries from the world for the period 1996-2011. We perform an Instrumental variable estimation because of the endogeneity of corruption as a determinant of the “Rule of Law”, with two approaches. We find that corruption is a significant determinant of the rule of law with the random effects approach. Corruption no longer has a significant impact on rule of law when we use fixed effects approach. Our implication is that anti-corruption policies are not effective strategies to induce a higher level of the rule of law and that random effects analysis is sometimes misleading.