Journal of Institutional Economics

Research Article

Can capitalism restrain public perceived corruption? Some evidence

HUGO J. FARIAa1 c1, DANIEL R. MORALESa2 c2, NATASHA PINEDAa3 c3 and HUGO M. MONTESINOSa4 c4

a1 Instituto de Estudios Superiores de Administración (IESA) Caracas, Venezuela

a2 Barna Business School, Santo Domingo, Dominican Republic

a3 Instituto de Estudios Superiores de Administración (IESA) Caracas, Venezuela

a4 Universidad Simón Bolívar (USB) and Instituto de Estudios Superiores de Administración (IESA) Caracas, Venezuela

Abstract:

A growing body of evidence documents a vast array of economic and social ill-effects of public perceived corruption. These findings and the scant evidence of recent success in the fight against corruption beg the question: how to abate it? We document the existence of a negative, statistically significant and quantitatively large impact of economic freedom (our proxy for institutions of capitalism, markets and competition) on public corruption. This negative response of corruption to economic freedom holds after allowing for non-linearities interacting economic freedom and political rights, endowments, legal families, ethnicity and for robust determinants of corruption uncovered by Daniel Treisman [‘What Have We Learned About the Causes of Corruption From Ten Years of Cross-National Empirical Research?’, Annual Review of Political Science, 10: 211–244], such as income, democracy, freedom of the press and fuel exports. Thus, this paper helps to explain why high-income prosperous countries exhibit low levels of public perceived corruption, and why honesty is a normal good.

(Online publication April 30 2012)