The Impact of Culture on Corruption, Gross Domestic Product, and Human Development

Abstract

The evidence of culture’s impact on corruption and its consequences is still inconclusive despite several investigations: (1) Sometimes, theory is lacking and causes and consequences seem exchangeable. Based on psychological research on the distribution and use of power, we predicted that a steeper distribution of power induces more corruption and elaborated its negative consequences in a complex causal model. (2) For measuring power distribution, pervading national culture, we augmented Hofstede’s ‘Power Distance’ with three additional indicators into a reversed, more reliable and valid culture composite called “Power Balanced Freedom” (PBF). (3) Instead of the usual regression and instrument approaches, which cannot estimate multiple causal chains including causal feedback, a non-recursive path analysis was employed with data from 85 nations. PBF predicted less national Corruption (62%), with positive effects on Gross Domestic Product (GDP, 72%) and Inequality Adjusted Human Development (IHDI, 66%, including Life Expectancy, Income, and Education). The often expected reverse effect of GDP on Corruption was not significant. Contrary to influential authors from economics, culture variables are the most important predictors of corruption and its consequences. Nonetheless, our extended model supports the main thrust of their ideas and adds more precision. Our conceptual distinction of the uses of power and our empirical measure PBF reflect Kant’s ethical imperative: freedom and autonomy for everyone. Widely shared life chances as measured by IHDI reflect utilitarian, consequentialist ideas. These different ethical approaches are connected in the confirmed causal model, in line with Rawls’ first and second principle of justice.