Does may of course be other variables that

Does democracy have an effect an corruption? The answer may not be obvious. The growing consensus reveals that there is an inverse correlation between democracy and corruption; the more democracy a country is, the less corruption. Take electoral democracy for instance. Competitive elections are likely to reduce corruption as corrupt incumbents may be voted out of office. On the other hand, the need to finance political campaigns may induce politicians to trade political decisions for funding. At a simple descriptive level, there are countries that do not fit into a pattern of more democracy – less corruption. Singapore is frequently mentioned as an example of a relatively undemocratic country where corruption is low. Conversely, democratic countries like Paraguay, Nepal or Nigeria have high levels of corruption. There may of course be other variables that explain corruption levels in these countries.   However, the role of sound democratic institutions, including an independent judiciary and an independent media along with active political participation is crucial to combat corruption, because the sound democratic institutions and healthy political competition can significantly contribute to accelerating anti-corruption reform. Under this assumption, wellfunctioning institutions where law and enforcement are a potential threat to corruption can restrain the level of corruption.  The instrument variable (IV) regression results show a negative significant effect of democracy on corruption. However, the downward bias (in absolute terms) of ordinary least squares estimates may be one reason why previous studies have also failed to find a robust relation between democracy and corruption. We also look into the question of which countries our estimates are relevant for. If effects of democracy on corruption are heterogeneous, it is possible that our IV estimates capture a local average treatment effects for some types of countries, rather than an average treatment effect across countries. Our results indicate a negative impact on corruption of incremental changes in democracy in relatively poor and somewhat democratic countries such as Malawi, Afghanistan, Bangladesh or Somalia. We hypothesize that: H0: There is no effect of democracy on corruption H1: There is an effect of democracy on corruption  The paper is structured as follows. Section two briefly reviews the theoretical and empirical literature on democracy and corruption, before explaining the estimation strategy, and providing an in-depth description of the instrument variable. Section three presents the data used in the econometric analysis and the main results. Section four concludes