Do infrastructure reforms reduce the effect of corruption? Evidence from Latin America

Liam Wren-Lewis (ODI Fellow, Ministry of Finance and Development Planning, Malawi, ECARES)

Abstract: This paper investigates the interaction between corruption and infrastructure policy reforms. I construct a simple model to illustrate how both an increase in regulatory autonomy and privatization may influence the effect of corruption. This interaction is then analysed empirically using a panel of 153 electricity distribution firms across 18 countries in Latin America and the Caribbean between 1995 and 2007. I find evidence that greater corruption is associated with lower firm efficiency, but that this association is reduced when an independent regulatory agency is present. These results survive a range of robustness checks including instrumenting for regulatory governance and corruption. I also find slightly less robust evidence that private ownership further mitigates the association between corruption and efficiency.