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Corruption and Openness

Author

Listed:
  • 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.

Suggested Citation

  • Neeman Zvika & Paserman M. Daniele & Simhon Avi, 2008. "Corruption and Openness," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-40, December.
  • Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:50
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    Cited by:

    1. Boyle, Glenn, 2009. "Capital Market Integration: A Review of the Issues and an Assessment of New Zealand's Position," Working Paper Series 4034, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    2. Aghion, Philippe & Akcigit, Ufuk & Cagé, Julia & Kerr, William R., 2016. "Taxation, corruption, and growth," European Economic Review, Elsevier, vol. 86(C), pages 24-51.
    3. 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.
    4. 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.
    5. 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.
    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. Biru Paksha Paul, 2010. "Does corruption foster growth in Bangladesh?," International Journal of Development Issues, Emerald Group Publishing, vol. 9(3), pages 246-262, September.
    8. 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.
    9. Philip Shaw & Marina‐Selini Katsaiti & Marius Jurgilas, 2011. "Corruption And Growth Under Weak Identification," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 264-275, January.
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    11. Sambit Bhattacharyya & Steve Dowrick & Jane Golley, 2009. "Institutions and Trade: Competitors or Complements in Economic Development?," The Economic Record, The Economic Society of Australia, vol. 85(270), pages 318-330, September.
    12. Dimant, Eugen, 2014. "The Antecedents and Effects of Corruption - A Reassessment of Current (Empirical) Findings," MPRA Paper 60947, University Library of Munich, Germany.
    13. 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.
    14. 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 41st Brazilian Economics Meeting] 075, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    15. repec:gam:jecomi:v:5:y:2017:i:4:p:49-:d:122367 is not listed on IDEAS
    16. Fabrizio Carmignani, 2007. "Efficiency of Institutions, Political Stability and Income Dynamics," The IUP Journal of Managerial Economics, IUP Publications, vol. 0(1), pages 6-30, February.
    17. Wang, Yuanyuan & You, Jing, 2012. "Corruption and firm growth: Evidence from China," China Economic Review, Elsevier, vol. 23(2), pages 415-433.
    18. 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.
    19. Hasan Ayaydin & Pinar Hayaloglu, 2014. "The Effect of Corruption on Firm Growth: Evidence from Firms in Turkey," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(5), pages 607-624, May.
    20. Damir Piplica, 2015. "Corruption and Political View Point of the Governments in Transition Countries EU Members," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(1), pages 73-87, January.

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    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • H00 - Public Economics - - General - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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