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Corruption

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Figure 2-1Figure 3-1 Model of Inequality, Trust, Corruption, and Effective GovernmentTable 3-1Simultaneous Equation Estimation of Corruption Variable Coefficient Standard Error t ratioCorruption equationTrust (imputed) 5.810**** 1.612 3.60Regulation of business .933*** .358 2.60Fairness of legal system .626*** .211 2.96GDP per capita (ICRG) .405*** .156 2.60 Ethnic fractionalization (Alesina) 1.256 .573 2.19Restrictions on conversions minority religions -.483** .280 -1.73Freedom House 2003 democratization -.426 .327 -1.30Constant -.482 .773 -.62Trust equationEconomic inequality (Gini index) -.515*** .191 -2.70Civil war -.091**** .025 -3.62Protestant share of population 1980 .200**** .059 3.40Former Communist nation -.110*** .042 -2.60Government effectiveness .014 .021 .68Constant .502**** .075 6.70Regulation equationFairness of legal system .239*** .082 2.91Openness of economy to trade .229*** .092 2.48Real growth in gross domestic product -.083 .068 -1.21Overall country risk (ICRG) -.014**** .003 -4.71Constant .378 .848 .44Table 3-1 (continued)Simultaneous Equation Estimation of Corruption Inequality equationTrust (imputed) -.135 .190 -.71Corruption -.028*** .009 -3.26Former Communist nation -.163**** .026 -6.38Protestant share of population 1980 .119 .052 2.28Muslim percent of population -.001**** .000 -3.70Constant .575**** .036 15.76Overall risk equationEconomic inequality (GINI) 31.580 25.424 1.24Corruption -8.378**** .958 -8.74Internal conflicts (ICRG) 7.066**** 1.500 4.71 Ethnic tensions (ICRG) 3.898*** 1.628 -2.39 Constant 168.766**** 15.924 10.60Government effectiveness equationTrust (Imputed) .761 .946 .80 Corruption .498**** .064 7.80Ethnic tensions (ICRG) -.093** .047 -2.00Poverty level 2005 (ICRG) -.355**** .090 -3.94Former Communist nation -.397*** .144 -2.76Constant -1.425**** .227 -6.28* p < .10 ** p < .05 *** p < .01 **** p < .0001 (all tests one tailed except for constants)Table 3-1 (continued)Summary of ModelsEquation R S.E.E. Mean F Statistic2Corruption .900 .855 5.276 68.51Trust .653 .081 .299 19.73Regulation of business .818 .392 .624 65.95Inequality (Gini) .518 .072 .358 11.27Overall risk (ICRG) .850 13.756 50.839 80.57GovernmentEffectiveness.835 .428 .158 54.91N = 62Instrumental variables: Religious fractionalization (from Alesina, Devleeschauwer, Easterly, Kurlat, andWacziarg, 2003); English legal tradition (from the Levine-Loyaza-Beck data set athttp://www.worldbank.org/research/growth/llbdata.htm ), GNP per capita (State Failure Data),constraints on the executive branch of government (Glaeser, La Porta, Lopez-de-Silanes, andShleifer, 2004); military in politics (at www.freetheworld.com ); terrorism risk (ICRG);bureaucratic quality (ICRG), parliamentary system and proportional representation (from theData Base of Political Institutions athttp://www.worldbank.org/wbi/governance/pubs/wps2283.html )Table 3-2Summary of Regressions for Government Effectiveness and CorruptionN Government Effectiveness CorruptionVariable Coefficient Std. Error t Ratio Coefficient Std. Error t RatioGrowth competitiveness ranking 2003 (WEF) 75/76 -9.493**** 1.794 -5.29 -14.358**** 2.358 -6.17Tax compliance (WEF) 45 .095** .055 1.72 .226** .131 1.74Expropriations risk 1982-97 (Glaeser et al., 2004)+ 64/66 .785**** .201 3.90 1.169**** .181 6.47Market capitalization (LaPorta, et al., in press)+ 43 .111* .073 1.53 .113** .042 1.91Markets open to small/medium firms (LaPorta, et al., in press)+ 40 .592**** .128 4.61 .427*** .123 3.47Index of state owned enterprises (LaPorta et al., 1999) 35 .443* .279 1.59 .653** .274 2.39Government consumption/GDP (freetheworld.org) 72/74 -.581*** .203 -2.86 -.802*** .305 -2.63Good labor-management relations (WEF) 70 .365**** .089 4.12 .320** .155 2.07How ethical are business firms (WEF) 81 .602**** .044 13.83 .887**** .070 12.61Executives involved in chariTable causes (WEF) 68 .106**** .031 3.31 .252**** .080 3.75Satisfied with state of environment (Gallup Millennium) 49 .187**** .036 5.18 .167**** .040 4.17Education spending (LaPorta et al., 1999) 43 .437*** .172 2.54 .663*** .205 3.24 Education Gini 1990 (Thomas, Wang, Fan, 2001) 47/48 -.030* .022 -1.39 -.065**** .019 -3.35Education standard deviation (Lederman)++ 60/62 -.002 .027 -.06 -.087*** .035 -2.48Secondary school enrollment (UN Development Program) 70/75 .021 2.056 .01 7.752*** 2.648 2.91Public health expenditures (UN Development Program) 74/81 .206 .217 .95 .770*** .254 3.04Transfer payments (LaPorta et al., 1999) 55/56 2.520*** .930 2.71 4.502**** .919 4.90UN Human Development Index (UN Development Program) 76/69 .008 .015 .54 .069**** .016 4.32 * p < .10 ** p < .05 *** p < .01 **** p < .0001 + estimated by 2SLS with instrumental variables ++ data provided by Daniel Lederman, World Bank Bold outcomes: corruption inpact stronger; italicized outcomes: effectiveness outcome stronger. Corruption index standardized.Table 3-3Summary of Models for Variables Shaped by Corruption and Effective GovernmentVariable N Other Variables in the Model and Significance (Corruption, Effectivenss) R2Growth competitiveness ranking 2003 (WEF) 75/76 Openness of economy (**, **), regulation of business (-, ****, ****) .85, .86Tax compliance (WEF) 45 Informal sector (-, ***, **), English law tradition (***, ***), education (NS, **) .67, .50Expropriations risk 1982-97 (Glaeser et al., 2004) 64/66 Informal sector (-, NS, ***), Gini index (-,***, ***) .67, .69Market capitalization (LaPorta, et al., in press) 43 Ease of starting new business, freetheworld.org (**, ***) .50, .52Markets open to small/medium firms (LaPorta, et al., in press) 40 Courts have independent procedural powers, LaPorta et al. (2003) (****, ***) .73, Index of state owned enterprises (LaPorta et al., 1999) 35 Rightist parliament (***,***), East bloc (-.**,**). ethnic polarization (NS, NS) .49, .44Government consumption/GDP (freetheworld.org) 72/74 GDP per capita PPP (-,**,****), East bloc (-, ****, **) .50, .51Good labor-management relations (WEF) 70 Ethnic tensions (-, NS, *), union density (NS, **), business regulation (-,NS, *) .44. .51How ethical are business firms (WEF) 81 Legal fairness (NS, ****), ethnic tensions (NS, *), East bloc (-,**, **) .87, .86Executives involved in chariTable causes (WEF) 68 East bloc (-,****,****), Jewish share population (****,****) .48, .51Satisfied with state of environment (Gallup Millennium) 49 Openness of economy (***, ***), government run by will of


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