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Summer 2017

ISSN 0890-913X

Volume 32, Number 2

Economic Freedom and Corruption: New Cross-Country Panel Data Evidence

Steven Yamarik, California State University

Chelsea Redmon, California State University

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TheJournalofPrivateEnterprise32(2),2017,17–44EconomicFreedomandCorruption:NewCross-CountryPanelDataEvidenceStevenYamarik�CaliforniaStateUniversityChelseaRedmonCaliforniaStateUniversity______________________________________________________AbstractThispaperexaminestheempiricalrelationshipbetweeneconomicfreedomandcorruption.Weuseaprincipal-agent-clientmodeltoidentifythepotentialcausallinkagesbetweencorruptionandthecomponentsofeconomicfreedom.Wethenestimateatwo-equationsystemwherefreedomdependsoncorruptionandviceversa.UsingaseriesofpanelGMMestimators,wefindthatcorruptionlowerseconomicfreedom,butthatfreedomdoesnotsignificantlyimpactcorruption.Theresultthatcorruptionlowersfreedomsupportsthe“grabbinghand”theoryofcorruption,whereanonbenevolentgovernmentcreatesinefficientregulationandbarrierstoentrytogenerateeconomicrents.______________________________________________________JELCodes:D73,K40,O17,P50Keywords:economicfreedom,corruption,paneldata,GMMI.IntroductionAgrowingliteratureexaminestheempiricalrelationshipbetweeneconomicfreedomandcorruption.Thefirstandmoreprominentbranchofthisliteraturelooksattheroleplayedbyeconomicfreedominexplainingcross-countrydifferencesincorruption.Byestimatingdeterminantsofeconomicfreedom,Goldsmith(1999),ChafuenandGuzmán(2000),Paldam(2002),andShenandWilliamson(2005)findthateconomicfreedomisnegativelyrelatedtocorruption.Subsequentanalysisshowsthatthisnegativerelationshipdoesnotholdacrossallcomponentsoffreedom(GoelandNelson2005);levelsofincome(GraeffandMehlkop2003);�WethankNoelJohnsonandthreeanonymousrefereesfortheirhelpfulsuggestions.Allremainingerrorsareourown.

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Metadata [hide]

Title	Economic Freedom and Corruption: New Cross-Country Panel Data Evidence
Authors/Creators:	Steven Yamarik, California State University Chelsea Redmon, California State University
Year:	2017
Volume:	32
Number:	2
Pages:	17 - 44
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-913X
Document Type:	Articles
Keywords:	economic freedom, corruption, panel data, GMM

Citation:
Yamarik, Steven; Redmon, Chelsea / 2017. "Economic Freedom and Corruption: New Cross-Country Panel Data Evidence." The Journal of Private Enterprise, 32(2): 17-44.