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Natural Openness and Good Government

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Author Info
Shang-Jin Wei

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Abstract

This paper offers a new interpretation of the connection between openness and good governance. Assuming that corruption and bad governance drive out international trade and investment more than domestic trade and investment, a naturally more open economy' as determined by its size and geography would devote more resources to building good institutions and would display lower corruption in equilibrium. In data, naturally more open economies' do exhibit less corruption even after taking into account their levels of development. Residual openness' which potentially includes trade policies is found not to be important once natural openness' is accounted for. Moreover, naturally more open economies' also tend to pay better civil servant salaries relative to their private sector alternatives indicative of the marginal benefit of good governance in a society's revealed preference. These patterns are consistent with the conceptual model.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7765.

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Date of creation: Jun 2000
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Handle: RePEc:nbr:nberwo:7765

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F0 - International Economics - - General
F1 - International Economics - - Trade

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References listed on IDEAS
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  1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 222-79, April.
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  2. Alberto Ades & Rafael Di Tella, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September. [Downloadable!] (restricted)
  3. Caroline van Rijckeghem & Beatrice Weder, 1997. "Corruption and the Rate of Temptation - Do Low Wages in the Civil Service Cause Corruption?," IMF Working Papers 97/73, International Monetary Fund.
  4. Daniel Kaufmann & Shang-Jin Wei, 1999. "Does "Grease Money" Speed Up the Wheels of Commerce?," NBER Working Papers 7093, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, vol. 47(1), pages 61-95, June. [Downloadable!] (restricted)
  6. Rose, Andrew, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," Seminar Papers 678, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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  7. Fisman, Raymond & Gatti, Roberta, 2002. "Decentralization and corruption: evidence across countries," Journal of Public Economics, Elsevier, vol. 83(3), pages 325-345, March. [Downloadable!] (restricted)
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  8. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August. [Downloadable!] (restricted)
  9. Shang-Jin Wei, 1996. "Intra-National versus International Trade: How Stubborn are Nations in Global Integration?," NBER Working Papers 5531, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February. [Downloadable!] (restricted)
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