Does Better Governance Guarantee Less Corruption? Evidence of Loss in Effectiveness of the Rule of Law

Abstract: Corruption is an endemic societal problem with profound implications in the development of nations. In combating this issue, cross-national evidence supporting the effectiveness of the rule of law seems at odds with poorly realized outcomes from reforms inspired in such literature. This paper provides an explanation for such contradiction. By taking a computational approach, we develop two methodological novelties into the empirical study of corruption: (1) generating large within-country variation by means of simulation (instead of cross-national data pooling), and (2) accounting for interactions between covariates through a spillover network. The latter (the network), seems responsible for a significant reduction in the effectiveness of the rule of law; especially among the least developed countries. We also find that effectiveness can be boosted by improving complementary policy issues that may lie beyond the governance agenda. Moreover, our simulations suggest that improvements to the rule of law are a necessary yet not sufficient condition to curve corruption.