Restrictive regulation is positively correlated to corruption

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The World Bank’s Investment Climate Department (CIC) has reviewed the recent literature on the relationship between restrictive regulation, corruption and business environment reforms, finding that corruption is positively correlated with restrictive regulation. 

Using databases of investment climate reforms (Doing Business) and corruption (World Wide Governance Indicators) from 2005-2008, Figure 1 shows a significant and positive correlation between corruption and the number of procedures for starting a business in 183 countries. 

Corruption Procedures Starting a Business 

The number of procedures is not the only indicator of regulatory barriers that may contribute to corruption.  Figure 2A shows that for a given number of procedures, the number of days to start a business is positively correlated with corruption. Figure 2B shows that the greater the number of documents needed to import and export, the higher the corruption rank, even after accounting for the number of procedures to start a business. 

Corruption ease of trade starting a business
Analysis of the reform and corruption data from 2005-2008 show that the number of days needed to start a business, import and export have a significant positive impact on corruption.  The results are robust, even when controlling for the levels of per capital GDP.  

Preliminary estimates by CIC staff suggest that a 25 day reduction in the number of days to start a business improves the control of corruption ranking by about 1 point. If the number of days to import and export is reduced by 25, the control of corruption ranking increases by 4.4 points. 

Further analysis shows that controlling for country specific effects, changes in the level of doing business indicators are positive and significantly correlated with changes in corruption rankings within a country.


Dorsati Madani

Senior Country Economist

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