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The Intriguing Nexus between Corruption and Capital Account Restrictions

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  • Axel Dreher

    ()
    (KOF Swiss Economic Institute, ETH Zurich)

  • Lars Siemers

    ()
    (Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI Essen), Division „Public Economics“)

Abstract

The paper develops a theoretical model showing a mutual relationship between corruption and capital account restrictions. According to the model, higher corruption induces stricter restrictions and vice versa. We test the model using panel data for 112 countries over the period 1984-2002 and find that corruption and restrictions are indeed mutually determined. Estimating the model simultaneously, capital account restrictions induce higher corruption. Higher corruption, in turn, is associated with more restrictions on the capital account. The empirical relationship is, however, not completely robust.

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Bibliographic Info

Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 05-113.

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Length: 40 pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:kof:wpskof:05-113

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Keywords: corruption; capital account restrictions; dynamic panel;

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