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International Financial Liberalization, Corruption, and Economic Growth

Author

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  • Francisco L. Rivera‐Batiz

Abstract

This paper examines the effects of capital account liberalization on the long‐run growth of a developing economy. A general‐equilibrium, endogenous growth model is constructed in which corruption forms an integral part of the governance system of the country. By undermining the profitability of innovations, corruption lowers the rate of return to capital and reduces the rate of technological change. The impact of international financial liberalization on long‐run growth in this model can be either positive or negative. A drop in growth is obtained when the level of corruption is high enough to cause domestic rates of return to capital before liberalization to drop below those in the rest of the world. In this case, liberalization generates capital outflows, which act as a constraining force on innovation, reducing the rate of technological change and lowering output growth. On the other hand, if the level of corruption is sufficiently low, the capital account liberalization will serve as a boost to the country’s technical change and growth.

Suggested Citation

  • Francisco L. Rivera‐Batiz, 2001. "International Financial Liberalization, Corruption, and Economic Growth," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 727-737, November.
    • Handle: RePEc:bla:reviec:v:9:y:2001:i:4:p:727-737
    DOI: 10.1111/1467-9396.00309
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    Cited by:

    1. Şakir Erdem & Beril Durmuş & Osman Özdemir, 2017. "The Relationship with Ad Clicks and Purchase Intention: An Empiricial Study of Online Consumer Behaviour," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 3, September.
    2. Bertrand Venard, 2009. "Corruption in emerging countries: A matter of isomorphism," Post-Print hal-00771103, HAL.
    3. Luis Angeles, 2005. "Capital Account Openness and Bankruptcies," Economics Discussion Paper Series 0542, Economics, The University of Manchester.
    4. Blackburn, Keith & Forgues-Puccio, Gonzalo F., 2010. "Financial liberalization, bureaucratic corruption and economic development," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1321-1339, November.
    5. Bertrand Venard & Mohamed Hanafi, 2008. "Organizational Isomorphism and Corruption in Financial Institutions: Empirical Research in Emerging Countries," Journal of Business Ethics, Springer, vol. 81(2), pages 481-498, August.
    6. Luis Angeles, "undated". "Monetary Policy and the Stock Market: Some International evidence," Working Papers 2006_13, Business School - Economics, University of Glasgow.
    7. Wei-bin ZHANG, 2020. "Corruption and Public Service in an Extended Solowian Growth Model with Endogenous Labor Supply," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 7(2), pages 1-20, July.
    8. Qing Liu & Ruosi Lu & Xiangjun Ma, 2015. "Corruption, Financial Resources and Exports," Review of International Economics, Wiley Blackwell, vol. 23(5), pages 1023-1043, November.
    9. Wei-Bin ZHANG, 2018. "Corruption, governments’ debts, trade, and global growth," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(615), S), pages 27-50, Summer.
    10. Carol M. Sánchez & Kevin Lehnert., 2018. "Firm-level trust in emerging markets: the moderating effect on the institutional strength- corruption relationship in Mexico and Peru," Estudios Gerenciales, Universidad Icesi, vol. 34(147), pages 127-138, May.

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    JEL classification:

    • F00 - International Economics - - General - - - General

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