Viewed as a characteristics of developing countries, corruption is a considerably observable phenomenon in these states. Development economists have long investigated the factors affecting corruption. Concerns over the global impacts of industrialization, increasing growth of population and urbanization are some of the factors known to affect corruption. This paper employs annual data from the period 2002-2012 to investigate the relationship of corruption index with variables of population density (as size of a country) and per capita GDP in 84 countries, taking into account the role of democracy in this association. While previous studies have recognized a significant relationship between population density and corruption; this study takes a step forward and -in addition to assessing such relationships- investigates the impact of democracy on the results of such relationships. Hence, the main research question is how and to what extend democracy plays a role in the relationship between population density and corruption. To avoid endogeneity problems, an estimation of instrumental variables and generalized method of moments (GMM) are used. Results indicate that if the level of democracy is sufficiently high, an increase in population density is related to a decrease in corruption. Inversely, if the level of democracy is low then the corruption tends to increase as population density raises.
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