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Corruption and Openness

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Author Info
Zvika Neeman (Boston University and Tel Aviv University)
M. Daniele Paserman (Boston University and Hebrew University)
Avi Simhon (Hebrew University)

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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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File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=2013&context=bejeap
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Publisher Info
Article provided by Berkeley Electronic Press in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 8 (2008)
Issue (Month): 1 ()
Pages:
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Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:50

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Related research
Keywords: corruption; growth; openness;

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Find related papers by JEL classification:
F2 - International Economics - - International Factor Movements and International Business
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
H0 - Public Economics - - General
O1 - Economic Development, Technological Change, and Growth - - Economic Development
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ventelou, Bruno, 2002. " Corruption in a Model of Growth: Political Reputation, Competition and Shocks," Public Choice, Springer, vol. 110(1-2), pages 23-40, January. [Downloadable!] (restricted)
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    Other versions:
  3. Sarte, Pierre-Daniel G., 2001. "Rent-seeking bureaucracies and oversight in a simple growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 25(9), pages 1345-1365, September. [Downloadable!] (restricted)
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  4. James Boyce & Léonce Ndikumana, 2001. "Is Africa a net creditor? new estimates of capital flight from severely indebted sub-Saharan African countries, 1970-96," The Journal of Development Studies, Taylor and Francis Journals, vol. 38(2), pages 27-56, December. [Downloadable!] (restricted)
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  5. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September. [Downloadable!] (restricted)
  6. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August. [Downloadable!] (restricted)
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  24. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-51, April. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Felipe Larraín & José Tavares, 2004. "Does Foreign Direct Investment Decrease Corruption?," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 41(123), pages 217-230. [Downloadable!]
  2. Sambit Bhattacharyya & Steve Dowrick & Jane Golley, 2008. "Institutions And Trade: Competitors Or Complements In Economic Development?," Departmental Working Papers 2008-12, Australian National University, Economics RSPAS. [Downloadable!]
    Other versions:
  3. George Economides & Sarantis Kalyvitis & Apostolis Philippopoulos, 2004. "Do Foreign Aid Transfers Distort Incentives and Hurt Growth? Theory and Evidence from 75 Aid-recipient Countries," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. Axel Dreher & Christos Kotsogiannis & Steve McCorriston, 2004. "Corruption Around The World: Evidence From A Structural Model," Public Economics 0406004, EconWPA. [Downloadable!]
    Other versions:
  5. Keith Blackburn & Gonzalo F. Forgues-Puccio, 2008. "Financial Liberalisation, Bureaucratic Corruption and Economic Development," Development Research Working Paper Series 06/2008, Institute for Advanced Development Studies. [Downloadable!]
    Other versions:
  6. Fabrizio Carmignani, 2005. "Efficiency Of Institutions, Political Stability And Income Dynamics," Public Economics 0503007, EconWPA. [Downloadable!]
  7. 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. [Downloadable!]
  8. 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. [Downloadable!] (restricted)
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