Determinants of Corruption: Government Effectiveness vs. Cultural Norms

Abstract This paper analyzes the parking behavior of United Nations diplomats in New York City and highlights the key limitation of an earlier work which claims cultural norms to be the significant determinant of corruption. We show that after controlling for Government Effectiveness index, which measures the quality of civil services and quality and quantity of public infrastructure in a country, the effect of culture on corruption becomes insignificant. However, the Country Corruption index and the Government Effectiveness index are strongly correlated which makes it difficult to identify the causal determinant of corruption. It is important to keep this correlation in mind before arriving at conclusions from empirical studies, because Country Corruption index could be proxying for other influences such as Government Effectiveness index, and ignoring this might lead us to falsely attribute the observed behavior to cultural or social norms alone. Understanding the relative importance of these potential causes of corruption is fundamental to policy recommendations.