Corruption or Just Cultural Distance?

How cultural distance between countries affects corruption perception in international business practices, an analysis based on the Transparency International Corruption Perception Index (CPI)

Corruption or Just Cultural Distance?

The best-known corruption scandal in 2016 was the famous Panama Papers, a corruption plot uncovered by the International Consortium of Investigative Journalists that implicated influential individuals from most countries in the world, proving that virtually no nation is free of corruption and bribery. Yet there is a widespread assumption that some regions and cultures are more prone to corruption than others. In fact, in some global corruption indicators, such as the Corruption Perception Index (CPI) by Transparency International, the Nordic countries (Scandinavia) are rated among the least corrupt, while developing countries in the global South appear at the other end of the ranking. Is this mere coincidence, or does culture affect a country’s level of corruption?

Although it has been claimed that certain cultural and economic factors can help to reduce corruption, such as higher income levels, less social inequality, or a protestant ethics background, this hypothesis has not, in fact, been proved. CPI is a ranking that measures the corruption perception, but is not an objective measure of the phenomenon. Perception indicators can have more systemic bias. Some studies have found no evidence of the correlation between a greater corruption perception and a greater corruption experience concerning corruption. 

This index has also been criticized for being based exclusively on Western values, without considering the cultural particularities of other regions. Not all practices that are deemed corrupt in the West are viewed in this way in other parts of the world. In this regard, being viewed as ‘corrupt’ is sometimes related more with being outside existing institutional and cultural mechanisms than with factors that are not granted social approval or legitimacy. For instance, many cultures in the world frown upon lobbying since it prioritizes certain market players over others; however, since this practice is legitimized in western countries, it is not included in the CPI. Significantly, this ranking methodology is based mainly on the opinions of corruption experts and businesspeople involved in international business, generating questions on its alleged elite bias.

In a recently published scientific article, “How far are we from understanding corruption? The effect of cultural distance on corruption perception” (Critical Perspectives on International Business, 2021), we examine the correlation between the cultural distance of these western standards and the corruption perception measured by CPI.

The cultural distance hypothesis

Denmark ranks first in CPI and also in the top places in other quality of life and institutional quality surveys. It also has the highest percentage (82%) of citizens who are Protestants, and, therefore, react particularly negatively to corruption. Denmark was our first reference point for the study.

In addition, the USA, as one of the most competitive countries in the world and with an enormous influence on international institutions and a dominant economic and business culture, was identified as our second reference point.

We hypothesize that the social distance from these two countries (Denmark and the USA) has a negative effect on corruption perception. In other words, regardless of the real corruption experienced in a country, the more culturally distant countries are from Denmark and the USA, the more corrupt they appear in the CPI.

To test our hypothesis, we used data from the 1995-2013 CPI reports; culture measures from the GLOBE center; Hofstede’s cultural dimensions scores; and country-level control variables retrieved from the World Bank.

Confirmation of bias

The results obtained in our study are in line with other similar findings obtained in prior research and prove the initial hypotheses. Some of the most relevant findings are:

  • The higher the GDP per capita, the less corrupt the country is
  • The more unequal the distribution of wealth in the country is, the higher the corruption level
  • The higher the percentage of government expenditure in the GDP of a country, the higher the corruption level is.
  • The cultural distance between the United States and the country of interest has a positive effect on corruption perception.
  • The cultural distance between Denmark and the country of interest has a positive effect on corruption perception.

Our study shows that cultural differences confirm the bias of corruption experts. It is not to say that countries ranked as highly corrupt in the CPI are not marred by institutional troubles, but rather that their culture is significantly different from the Western corruption perception benchmark. CPI scores are based, as shown, on cultural distance.

This is illustrated in the widely discussed case of the presence of Chinese foreign direct investment (FDI) in Africa. Of the African countries, Ethiopia is the greatest recipient of Chinese FDI and, coincidentally, the most corrupt of the FDI recipients on that continent. Interestingly, however, Ethiopia is the country that is most culturally similar to China.

Doing business with similar cultures

There is an evident tendency to invest in culturally close countries. For example, the key target for US investment in Africa is South Africa. Japan also shares this preference, concentrating 30% of its Africa-directed FDI on this country.

If we consider that CPI reflects only the similarities between cultures, it can hardly be considered as an objective measure of the complex phenomenon of corruption. Just because a country is culturally distanced from Denmark and the USA, its practices are not necessarily corrupt. Cultures can be distanced from Western values without being in the least corrupt. And there are also cultures that are very close to these Western countries, but suffer from corruption.

Examples are Brazil and Canada, two countries that have been shaken with gigantic corruption scandals involving construction companies (Odebrecht and SNC-Lavalin), implicating high-ranking officials. While Canada is ranked 12th (with a cultural distance from Denmark of 89), Brazil is ranked 106th (with a cultural distance from Denmark of 182). Naturally, there are many differences in the quality of institutions and public administration transparency in both countries; nevertheless, the difference in their CPI ranking is abysmal.

This study proves that, although popular in academia, the Transparency International Corruption Perception Index is significantly biased and does not reflect the real corruption levels.

Nuestra hipótesis es que la distancia cultural hacia estos dos países (Dinamarca y Estados Unidos) tiene un efecto negativo en la percepción de la corrupción. Es decir, independientemente de la corrupción real que viva un país, cuanto más culturalmente distantes sean los países con respecto de Dinamarca y Estados Unidos, más corruptos aparecen en el CPI.

Para probar nuestra hipótesis, usamos datos de los reportes de CPI desde 1995 y hasta 2013; mediciones culturales del centro GLOBE; puntuaciones culturales de Hofstede y variables de control a nivel país extraídas del Banco Mundial.

The authors are Director of the MBA Fly-In Programs (Iván Adolfo Valdovinos), research professor of the Graduate Business School at Tecnológico de Monterrey (Evodio Kaltenecker) and professor at the Moscow School of Management SKOLKOVO (Mike Szymanski).

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