Institutions and the political economy of corruption in developing countries. Australian National University,Discussion Paper

This is a discussion paper that uses Indonesia’s experiences to explore some arguments about the ways in which political institutions bear upon the dynamics of corruption in developing countries. It works at the edges of two of the best-established ideas on corruption: that corruption is a drag on economic development, and that democratic governance is a critical ingredient in containing corruption. Simply stated, the former holds that investors, particularly private investors, require independent and effective legal institutions to contain corruption and secure their property rights. If contracts cannot be enforced in a reasonably consistent way and if governments are not constrained from acting corruptly or capriciously, the risks to potential investors are likely to become prohibitive. Rapaciously corrupt environments are thus widely understood as inhospitable to investment, and thus growth. Similarly, it is also now widely accepted among scholars and practitioners that, over time, democratic governance arrangements provide the best environment for containing corruption and securing property rights. Democratic frameworks make the operations of government more transparent, increase the scope for holding politicians accountable for their actions and allow independent judicial systems to operate. These two basic ideas are closely linked and rest upon strong logic