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Corruption and Openness

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  • Neeman Zvika

    ()
    (Boston University and Tel Aviv University)

  • Paserman M. Daniele

    ()
    (Boston University and Hebrew University)

  • Simhon Avi

    ()
    (Hebrew University)

Abstract

We report an intriguing empirical observation. The relationship between corruption and output depends on the economy's degree of openness: in open economies, corruption and GNP per capita are strongly negatively correlated, but closed economies display no relationship at all. This stylized fact is robust to a variety of different empirical specifications. In particular, the same basic pattern persists if we use alternative measures of openness, if we focus on different time periods, if we restrict the sample to include only highly corrupt countries, and if we restrict attention to specific geographic areas or to poor countries. We find that the degree of financial openness is primarily what determines whether corruption and output are correlated. Moreover, corruption is negatively related to capital accumulation in open economies, but not in closed economies. We present a model, consistent with these findings, in which the main channel through which corruption affects output is capital drain.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 8 (2008)
Issue (Month): 1 (December)
Pages: 1-40

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Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:50

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The cost of corruption
    by Economic Logician in Economic Logic on 2008-12-09 15:02:00
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Cited by:
  1. Wang, Yuanyuan & You, Jing, 2012. "Corruption and firm growth: Evidence from China," China Economic Review, Elsevier, vol. 23(2), pages 415-433.
  2. Sambit Bhattacharyya & Steve Dowrick & Jane Golley, 2007. "Institutions and Trade: Competitors or Complements in Economic Development?," DEGIT Conference Papers c012_005, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Blackburn, Keith & Forgues-Puccio, Gonzalo F., 2009. "Why is corruption less harmful in some countries than in others?," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 797-810, December.
  4. Francisco De Assis Oliveira Campos & Luiz Ivan De Melo Castelar, 2014. "Avaliação Da Corrupção Municipal A Partir De Microdados," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41th Brazilian Economics Meeting] 075, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  5. Biru Paksha Paul, 2010. "Does corruption foster growth in Bangladesh?," International Journal of Development Issues, Emerald Group Publishing, vol. 9(3), pages 246-262, July.
  6. Aida Isabel Tavares, 2004. "The socio-cultural and political-economic causes of corruption: a cross-country analysis," Working Papers de Economia (Economics Working Papers) 19, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
  7. Fabrizio Carmignani, 2005. "Efficiency Of Institutions, Political Stability And Income Dynamics," Public Economics 0503007, EconWPA.
  8. Felipe Larraín & José Tavares, 2004. "Does Foreign Direct Investment Decrease Corruption?," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 41(123), pages 217-230.
  9. George Economides & Sarantis Kalyvitis & Apostolis Philippopoulos, 2008. "Does foreign aid distort incentives and hurt growth? Theory and evidence from 75 aid-recipient countries," Public Choice, Springer, vol. 134(3), pages 463-488, March.
  10. Dreher, Axel & Kotsogiannis, Christos & McCorriston, Steve, 2007. "Corruption around the world: Evidence from a structural model," Journal of Comparative Economics, Elsevier, vol. 35(3), pages 443-466, September.
  11. Subhayu Bandyopadhyay & Suryadipta Roy, 2011. "Political economy determinants of non-agricultural trade policy," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 89-104.
  12. Andrew van Hulten & Michael Webber, 2010. "Do developing countries need 'good' institutions and policies and deep financial markets to benefit from capital account liberalization?," Journal of Economic Geography, Oxford University Press, vol. 10(2), pages 283-319, March.
  13. 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.
  14. Philip Shaw & Marina-Selini Katsaiti & Marius Jurgilas, 2006. "Corruption and Growth Under Weak Identification," Working papers 2006-17, University of Connecticut, Department of Economics, revised Mar 2007.

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