Well-functioning institutions matter for economic development. In order to operate effectively, public institutions must also inspire confidence in those they serve. The authors use data from the Gallup World Poll, a unique and very large global household survey, to document a quantitatively large and statistically significant negative correlation between corruption and confidence in public institutions. This suggests an important channel through which corruption can inhibit development by eroding confidence in public institutions. This correlation is robust to the inclusion of a large set of controls for country and respondent-level characteristics, and they show how it can plausibly be interpreted as reflecting at least in part a causal effect from corruption to confidence. The authors also show that individuals with low confidence in institutions exhibit low levels of political participation, show increased tolerance for violent means to achieve political ends, and have a greater desire to “vote with their feet” through emigration.

Introduction

Despite considerable debate over definitions, measurement, and methodology, it is widely-accepted among academics and policymakers that well-functioning public institutions play an important role in economic development. In turn, a key ingredient in the effectiveness of public institutions is the confidence that they inspire among those whom they serve. For example, households or firms who do not have confidence in the police or the courts are unlikely to avail themselves of their services, and may resort to less efficient means of property protection or dispute resolution. Similarly, if individuals lack confidence in the honesty of the electoral process they are unlikely to vote, leading to low turnout rates that cast doubt on elected officials‟ popular mandates and their ability to carry out their agendas.

In this paper we empirically investigate the role of corruption in undermining confidence in public institutions. We document a quantitatively large and statistically significant partial correlation between measures of corruption and confidence in public institutions using a unique dataset. The Gallup World Poll (GWP) is a new and very large cross-country household survey, interviewing more than 100,000 households in over 150 countries, annually or biennially in most countries since 2006. We use questions from the 2008 wave of the GWP, covering over 78,000 respondents in 90 countries to study the links between corruption and confidence in public institutions in both developed and developing countries. Not surprisingly, in countries where respondents report a high incidence of personal experiences with corruption, and in which perceived corruption is widespread, confidence in public institutions is also low. Much more interestingly, we show that this pattern also holds across individuals within countries: individuals who experience corruption and who report that corruption is widespread also tend to have lower confidence in public institutions. We show that this correlation is robust to the inclusion of a large set of variables to control for respondentlevel characteristics, including a number of proxies intended to capture the respondent's tendency to complain and report more negatively on corruption and confidence than might otherwise be objectively warranted.

We are not the first to empirically explore the links between corruption and confidence in public institutions. Relative to the existing literature (which we discuss in more detail below), we offer three important contributions. First and most basic, our study covers a much larger set of countries and respondents than any previous work, which due to data limitations typically has been focused on small, regionally-focused samples of countries. Second, several features of the GWP allow us to include a very rich set of respondent-level control variables, importantly including proxies for respondents‟ unobserved propensity to respond negatively to both questions about corruption and confidence that might artificially bias our results towards finding a strong effect of corruption on confidence.

Third and perhaps most important, we offer a serious analysis of an identification problem that has largely been ignored by the existing literature. Simply documenting that survey respondents answer “yes” to a question like “is corruption a problem in your country” and “no” to a question like “are you confident in your national government”, as most of the previous literature has done, does little to identify the direction of causation between the two. Perhaps respondents‟ perceptions of the prevalence of corruption drive their low confidence in institutions, but just as plausibly the opposite could be true: individuals who lack confidence in public institutions might as a result express the view that corruption is widespread. We are able to provide suggestive evidence on the extent of the biases that this endogeneity problem might create by exploiting the difference in responses to two questions asked in the GWP. As we discuss in more detail below, the GWP asks both a generalized perceptions of corruption question, as well as a very specific experiential question which asks whether the respondent has been asked for a bribe in the past 12 months. The advantage of the latter question is that it is much more plausibly exogenous to respondents‟ confidence in public institutions since it in large part reflects the decision of a public official to solicit a bribe from the respondent, rather than the respondent‟s own characteristics. Consistent with this view, we find that the estimated effect of the experiential corruption question is substantially smaller and less statistically significant than the corresponding estimated effect using the generalized perceptions question. However it remains strongly significant and quantitatively large, supporting our claim of an important and plausibly causal effect running from corruption to confidence in public institutions.

The rest of this paper proceeds as follows. In the next section we review the related literature. Section 3 contains our main empirical results linking corruption to confidence in public institutions. In Section 4 we explore a number of robustness checks for this partial correlation, and in Section 5 we discuss in detail the identification problem and potential solutions. In Section 6 we briefly document the consequences of the corruption-induced loss of confidence in public institutions, showing that individuals with low confidence in public institutions are less likely to engage in the political process, are more likely to condone violence as a means to further political ends, and are more likely to “vote with their feet” by emigrating. Section 7 concludes.