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Trade reform, intermediation and corruption

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  • Mandal, Biswajit
  • Marjit, Sugata

Abstract

We construct a general equilibrium model with a protected intermediate sector and analyze the effectiveness of trade reform for a small open economy where bureaucratic corruption arises because of trade protection. Intermediaries are employed by the producers in order to avoid paying the import tariff. We use an HOSV kind of framework to prove whether trade liberalization necessarily leads to a decline in intermediation activities. We find that labor intensity of the exportable commodity which uses the intermediate good is critical in determining the extent of corruption. It is essentially a tug of war between higher tariff revenue and higher wage in the new equilibrium. Thus trade liberalization may or may not lead to less corruption.

Suggested Citation

  • Mandal, Biswajit & Marjit, Sugata, 2013. "Trade reform, intermediation and corruption," Economic Modelling, Elsevier, vol. 33(C), pages 741-746.
    • Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:741-746
    DOI: 10.1016/j.econmod.2013.05.022
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    References listed on IDEAS

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    1. Deepraj Mukherjee, 2018. "Corruption in International Business: Does Economic Globalization Help?," Global Business Review, International Management Institute, vol. 19(3), pages 623-634, June.
    2. Biswajit Mandal & Prasun Bhattacharjee, 2020. "A Theoretical Note on Sector-specific FDI Inflow in Developing Economies and the Real Exchange Rate," Foreign Trade Review, , vol. 55(2), pages 189-198, May.
    3. Pi, Jiancai & Zhou, Yu, 2013. "Institutional quality and skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 35(C), pages 356-363.
    4. Biswajit Mandal & Arindam Mandal, 2015. "A Note on How and Why Growth and Unemployment Go Hand in Hand in Developing Economies," International Economic Journal, Taylor & Francis Journals, vol. 29(4), pages 681-693, December.
    5. Saibal KAR & Biswajit MANDAL & Sugata MARJIT & Vivekananda MUKHERJEE, 2020. "Seeking Rent In The Informal Sector," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 91(1), pages 151-164, March.
    6. Mandal, Biswajit & Biswas, Anindya, 2015. "Sector Specific Inflow of capital, Non-Traded sector and an Increase in Real Exchange Rate," MPRA Paper 68226, University Library of Munich, Germany.
    7. Mandal, Biswajit, 2014. "Traded Goods, Tax and Intermediation - the Role of Corrupt Nontraded Sector," MPRA Paper 56525, University Library of Munich, Germany.

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    More about this item

    Keywords

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    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • F1 - International Economics - - Trade
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium

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