Cognitive ability and corruption: rule of law (still) matters
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Cognitive ability and corruption: rule of law (still) matters Mohammad Reza Farzanegan1 Received: 26 October 2018 / Accepted: 27 March 2019 © Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract This study shows that the “longer time horizon” argument proposed by Potrafke (Econ Lett, 2012. https://doi.org/10.1016/j.econlet.2019.02.026) with regard to the negative effect of a higher national average cognitive ability on corruption holds only for countries with a relatively high quality of legal systems. Using a sample of 94 countries from around the world, our cross-country regression analyses show the moderating role of rule of law in the final effects of cognitive abilities on corruption. The results are robust after using different indicators of corruption, rule of law and cognitive skills. Keywords Corruption · Intelligence · Cognitive · Rule of law JEL Classification A13 · D91 · E71 · D73 · E02
1 Introduction The costs of corruption are substantial. In a recent study by the Fiscal Affairs and Legal Departments of the IMF (2016), the annual costs of bribery alone were estimated to be between 1.5 and 2 trillion dollars (approximately 2% of world GDP in 2016). These costs increase when we also take into account the political (Farzanegan and Witthuhn 2017) and mental costs (Welsch 2008) of high corruption. Several studies have tried to identify the causes of corruption and their role in explaining the crosscountry differences in corruption. Dimant and Tosato (2018) provide a comprehensive survey of the existing literature on the causes and effects of corruption. Potrafke (2012) offers an interesting explanation for the different levels of corruption across countries. He argues that the populations with high intelligence (IQ)1 enjoy less corruption since such communities place greater weight on the long-term benefits gained from 1 In this study, we use the terms “cognitive ability” and “intelligence” interchangeably.
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Mohammad Reza Farzanegan [email protected] Philipps-Universität Marburg, Center for Near and Middle Eastern Studies (CNMS), School of Business and Economics, Economics of the Middle East Research Group, Deutschhausstr. 12, 35032 Marburg, Germany
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lower corruption.2 High-IQ populations can internalize the negative future effects of corruption due to the longer time horizons that they enjoy in their economic and social interactions, whereas corruption is higher in societies in which the average population has a shorter time horizon in their economic and social interactions.3 Potrafke then uses a cross-country dataset and tests the negative effect of intelligence on corruption while controlling for other drivers of corruption. He provides empirical support for a linear and negative effect of a higher IQ on corruption.4 We reexamine the study of Potrafke (2012), taking into account the moderating role of rule of law in the final effect which cognitive abilities have on corruption. Using a sample of 94 countries, our ordinary least squares (OLS) estimati
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