This thesis has studied several aspects of the relationship between corruption and development with the aim of contributing to the empirical and theoretical lit- eratures. The focus has been placed on the determinants of corruption and we have used various methodologies to address three key topics -the relationship be- tween freedom of the press and corruption, the relationship between corruption, development and decentralisation and the relationship between federalism, decen- tralisation and corruption.
With regard to the relationship between press freedom and corruption, we have evaluated the relevant literature and identi ed the need for a thorough analysis of this relationship. The main motivation, discussed in chapter 3, is given by the ex- istence of mixed evidence regarding this relationship. We have also set the goal of exploring this relationship further by considering how speci c restrictions to media freedom aect bureaucratic corruption. Our empirical evidence, obtained using a global sensitivity analysis, con rms earlier results that greater media freedom is associated with lower corruption. Our estimates of the eect of press freedom on corruption however, are not only robust to dierent data and methods but also to changes in the conditioning information set. More speci cally, we have
used the growing body of knowledge on the determinants of corruption to test the press freedom estimates for robustness to a wide range of potential determinants using the methodology known as extreme bounds analysis. We have also suggested and implemented certain methods and statistics to overcome the criticisms of this methodology.
In addition to con rming earlier results, we have also explored how dierent as- pects of restrictions to press freedom matter for corruption. The econometric results suggest that not all the forms of restrictions to press freedom are strongly and robustly correlated with corruption. For example, the evidence suggests that the aspects concerning legal and administrative regulations obstructive of the me- dia are not robustly associated to higher corruption. In contrast, economic and political restrictions are strongly associated with higher corruption and the esti- mates suggest a sizable eect. We also present preliminary evidence concerning the direction of the causation. Based on the tests to control for endogeneity, it would appear that improvements in press freedom lead to a lower incidence of cor- ruption. Nevertheless, we remain cautious regarding this issue given the di culties of nding meaningful and truly exogenous instruments.
The second central topic we study is the relationship between corruption, develop- ment and decentralisation. One of the issues that has received much attention in recent years is the bidirectional relationship between corruption and development. Among the appeal of these models is that they allow us to incorporate and analyse the impact of institutional or policy changes without aecting their essential prop- erties. We use this type of dynamic growth model to analyse the conditions under which decentralisation is associated with higher economic development. Although much has been written on the bene ts and dangers of decentralisation, the overall eect on development is subject to much debate and contention. Our purpose regarding this topic has not been to elaborate a fully comprehensive model but rather to provide a simple model considering dierent decentralisation regimes and the implications for corruption and development. The issue is certainly more complex than it was originally considered and there are several interrelationships
between the economic and political aspects involved.
The main implications of our model can be summarised as follows: rst, cor- ruption has a negative impact on development. Bureaucratic corruption, in our model represented as embezzlement of public funds, divert away public funds that otherwise would have been contributed to production of private services. It also increases the cost of public activity by raising monitoring costs. Second, we nd that decentralisation is always preferable to centralisation if corruption is absent in the economy but may not be the preferred alternative if corruption is pervasive. Under some conditions, the economic bene ts associated to decentralisation are more than oset by the political costs associated to it, and the economy may end up with a lower development level than if the country were decentralised. Finally, the model is able to explain why in the absence of institutional reform, corruption and poverty remain as permanent characteristics of the economy. This result is particularly important given the emphasis on decentralisation reforms advocated in recent decades. Although our analysis does not accurately capture the decision to decentralise or recentralise it might provide a framework of analysis that would be well suited to this task and could be extended to incorporate multiple aspects of decentralisation and eventually to endogenise the decentralisation process. Our nal central topic addresses the relationship between federalism, decentrali- sation and corruption. There are obvious links with the topic studied in chapter 4, although the methodology and scope are somewhat dierent. The aim here is to incorporate a multidimensional examination of the relationship between cor- ruption and decentralisation. The methodology is empirical. Although it has been recognized that there are multiple dimensions of decentralisation, until very recently, the empirical literature has rarely gone beyond the analysis of a sin- gle or alternative aspects of decentralisation. Furthermore, it has been noted that there may be important interrelations and overlaps between these dierent aspects worth considering. In addition, there are reasons to believe in the possibility that certain forms of decentralisation work better when certain forms of centralised institutions are present. Finally, it is likely that dierent dimensions of decentral-
isation co-evolve over time and this co-evolution may produce a signi cant eect on corruption and institutional quality.
We have suggested earlier in this thesis that empirical studies on corruption and decentralisation are at a relatively early stage in their development. While there are several theories of decentralisation, the empirical literature has not generally addressed their multidimensional nature and the interrelations between dierent types of decentralisation. Several reasons lie behind this. First, there is a problem of data availability and concept. In order to avoid having only a partial view of the problem, one must ensure to de ne, group and control for the several recognized dimensions of decentralisation. Decentralisation has been often suggested as a channel through which countries are able to achieve e ciency, accountability and democratisation. Most likely, not all forms of decentralisation contribute to these objectives or at least not to the same extent.
Our study adds to the recent literature in that we not only recognize and measure the existence of dierent dimensions of decentralisation but also suggest hypothe- ses based on the theoretical literature and model their interactions. Furthermore, unlike most previous research we propose and nd that some types of decentral- isation are simultaneously associated with corruption through both direct and indirect eects. Our nding that long-standing unitary countries (constitutional centralisation) that are also scally decentralised have low corruption is to some extent present in earlier research. The main dierence is that most articles do not nd that these two dimensions of decentralisation are signi cant in the same model. Furthermore, we also nd evidence suggesting that political decentralisa- tion is also associated with corruption, but only in an indirect way through its eect on constitutional decentralisation. In particular, political decentralisation weakens the impact of constitutional centralisation on corruption. This result is similar to Enikolopov and Zhuravskaya (2006) who nd a negative indirect eect of political decentralisation on corruption. Our results are robust to a range of speci cations and to several alternative measures.