Exploring the link between corruption and state capacity: a case study of brazilian municipalities

Abstract

This master thesis aims to investigate the causal effect of corruption on state capacity. While the diversity of theories of the causes and implications of corruption has grown as a result of the increased availability of data, there is a surprising lack of studies attempting to identify the causal effect that corruption has on state capacity. Building on previous literature, this paper employs the difference in differences and event study methods to explain how a case study of a top-down anti-corruption program could allow for a causal analysis of the effects of a drop in corruption on future state capacity, using data from over 250 Brazilian municipalities over 9 years from 2002 to 2010. The findings suggest that a drop in corruption can actively allow for the development of state capacity through several means. With state capacity being a key part of economic development, and capacity building being a core pillar of the United Nation’s Sustainable Development Goals, the findings could facilitate better-informed policy-making that could have a greater and more holistic impact on developing nations.