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Corruption and bilateral trade flows: extortion or evasion?

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  • Pushan Dutt
  • Daniel Traca

Abstract

We analyze the impact of corruption on bilateral trade, highlighting its dual role in terms of extortion and evasion. Corruption taxes trade, when corrupt customs officials in the importing country extort bribes from exporters (extortion effect); however, with high tariffs, corruption may be trade enhancing when corrupt officials allow exporters to evade tariff barriers (evasion effect). We derive and estimate a corruption-augmented gravity model, where the effect of corruption on trade flows is ambiguous and contingent on tariffs. Empirically, corruption taxes trade in the majority of cases, but in high-tariff environments (covering 5% to 14% of the observations) their marginal effect is trade enhancing. (c) 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/14172.

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Publication status: Forthcoming
Handle: RePEc:ulb:ulbeco:2013/14172

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Cited by:
  1. Susanna Thede & Nils-Åke Gustafson, 2012. "The Multifaceted Impact of Corruption on International Trade," The World Economy, Wiley Blackwell, vol. 35(5), pages 651-666, 05.
  2. repec:hal:cesptp:halshs-00461486 is not listed on IDEAS
  3. Yue Li & John S. Wilson, 2009. "Trade Facilitation and Expanding the Benefits of Trade: Evidence from Firm Leval Data," Working Papers 7109, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
  4. Yaron Zelekha & Eyal Sharabi, 2012. "Corruption, institutions and trade," Economics of Governance, Springer, vol. 13(2), pages 169-192, June.
  5. Hochman, Gal & Tabakis, Chrysostomos & Zilberman, David, 2013. "The impact of international trade on institutions and infrastructure," Journal of Comparative Economics, Elsevier, vol. 41(1), pages 126-140.
  6. Pierre-Louis Vezina, 2014. "Illegal Trade in Natural Resources: Evidence from missing exports," OxCarre Working Papers 139, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  7. Dutt, Pushan & Mihov, Ilian & Van Zandt, Timothy, 2011. "Does WTO Matter for the Extensive and the Intensive Margins of Trade?," CEPR Discussion Papers 8293, C.E.P.R. Discussion Papers.
  8. Zsoka Koczan & Alexander Plekhanov, 2013. "How important are non-tariff barriers? Complementarity of infrastructure and institutions of trading partners," Working Papers 159, European Bank for Reconstruction and Development, Office of the Chief Economist.
  9. Fox, William F. & Luna, LeAnn & Schaur, Georg, 2014. "Destination taxation and evasion: Evidence from U.S. inter-state commodity flows," Journal of Accounting and Economics, Elsevier, vol. 57(1), pages 43-57.
  10. Dobson, Stephen & Ramlogan-Dobson, Carlyn, 2012. "Why is Corruption Less Harmful to Income Inequality in Latin America?," World Development, Elsevier, vol. 40(8), pages 1534-1545.
  11. Starosta de Waldemar, Felipe, 2010. "How costly is rent-seeking to diversification: an empirical approach," Proceedings of the German Development Economics Conference, Hannover 2010 4, Verein für Socialpolitik, Research Committee Development Economics.
  12. Pierre-Louis Vezina & Lorenzo Rotunno, 2013. "In-bond Diversion," Economics Series Working Papers 664, University of Oxford, Department of Economics.
  13. Murat Genç & David Law, 2014. "A Gravity Model of Barriers to Trade in New Zealand," Treasury Working Paper Series 14/05, New Zealand Treasury.
  14. Shepherd, Ben, 2009. "Speed Money: Time, Corruption, and Trade," MPRA Paper 17337, University Library of Munich, Germany.

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