10 - The Transition of Corruption

Summary

The definition, measurement, and scale for the Transparency International corruption T-index are discussed. It increases when corruption falls. A large cross-country sample exists, but long time-series are based on anecdotes. They seem to confirm equivalence. The theories connecting development and corruption are surveyed. There are the demand theory seeing honesty as an intangible good, the transaction theory, and the sand vs. grease theories. The T-index has a beautiful transition curve that is very robust. The causality tests show that the main direction of causality is from income to corruption, but there is some simultaneity. While the T-variable is positively correlated to the levels of income, democracy, and economic freedom, it is negatively correlated to the first difference of these development variables. It is also a problem that the four variables are strongly confluent, as they all have transitions, but the transition of corruption is later than the transitions to democracy and a modern economic system. A set of examples show that institutional uncertainty gives corruption.