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Corruption and Economic Development

Author

Listed:
  • Sule Akkoyunlu

    () (İktisadi ve İdari Bilimler Fakültesi, ODTU, Turkey; The Rimini Centre for Economic Analysis; Department of Economics, Wilfrid Laurier University, Canada)

  • Debora Ramella

    () (Università degli Studi di Torino, Italy)

Abstract

This study investigates the impact of openness to trade and corruption on economic development for a cross-section of 143 countries for the year 2000 by analysing the effects of trade openness and corruption on income, productivity, innovation, and income inequality. Institutional, cultural and geographical factors, and country size are controlled for in the analysis. An instrumental variable approach has been adopted in order to address the endogeneity of corruption and openness to trade. The age of democracy and gravity-based predictors are chosen as the instruments for corruption and openness to trade, respectively. The estimates show that corruption negatively affects income per capita, productivity, and innovation, while it does not significantly impact income inequality (Gini). The control of corruption and the openness to trade affect output per worker through the total factor productivity. Both the control of corruption and openness to trade are statistically significant determinants of the 90/10 income gap. Landlockedness affects Gini Index directly, even after controlling for trade and corruption. These findings have important policy implications. For example, on the basis of the estimates, if Botswana improved its control of corruption to reach the level of Finland, its per capita income would rise by 2.7 times.

Suggested Citation

  • Sule Akkoyunlu & Debora Ramella, 2017. "Corruption and Economic Development," Working Paper series 17-29, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:17-29
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    File URL: http://www.rcea.org/RePEc/pdf/wp17-29.pdf
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    References listed on IDEAS

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    1. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
    2. Jonathan Isham & Daniel Kaufmann, 1999. "The Forgotten Rationale for Policy Reform: The Productivity of Investment Projects," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 149-184.
    3. Theo S. Eicher & Andreas Leukert, 2009. "Institutions and Economic Performance: Endogeneity and Parameter Heterogeneity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(1), pages 197-219, February.
    4. 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 222-279, April.
    5. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
    6. Thierry Verdier & Daron Acemoglu, 2000. "The Choice between Market Failures and Corruption," American Economic Review, American Economic Association, vol. 90(1), pages 194-211, March.
    7. Kwabena Gyimah-Brempong & Samaria de Gyimah-Brempong, 2006. "Corruption, Growth, and Income Distribution: Are there Regional Differences?," Economics of Governance, Springer, vol. 7(3), pages 245-269, August.
    8. Ramón E. López & Vinod Thomas & Yan Wang, 2008. "The Quality of Growth," World Bank Publications, The World Bank, number 28198, June.
    9. repec:hrv:faseco:30747160 is not listed on IDEAS
    10. Yu, Miaojie, 2010. "Trade, democracy, and the gravity equation," Journal of Development Economics, Elsevier, vol. 91(2), pages 289-300, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Trade; Corruption; Economic Development; Productivity; Innovation and Inequality;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • F00 - International Economics - - General - - - General
    • F10 - International Economics - - Trade - - - General
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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