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The Intriguing Nexus between Corruption and Capital Account Restrictions

  • Lars Siemers

    ()

  • Axel Dreher

The paper develops a theoretical model showing a mutual relationship between corruption and capital account restrictions. According to the model, higher corruption induces stricter restrictions and vice versa. We test the model using panel data for 112 countries over the period 1984–2002 and find that corruption and restrictions are indeed mutually determined. Estimating the model simultaneously, capital account restrictions induce higher corruption. Higher corruption, in turn, is associated with more restrictions on the capital account.The empirical relationship is,however, not completely robust.

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File URL: http://repec.rwi-essen.de/files/DP_05_035.pdf
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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung in its series RWI Discussion Papers with number 0035.

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Length: 38 pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:rwi:dpaper:0035
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  1. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
  2. Dooley, Michael P & Isard, Peter, 1980. "Capital Controls, Political Risk, and Deviations from Interest-Rate Parity," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 370-84, April.
  3. Vittorio Grilli & Gian-Maria Milesi-Ferretti, 1995. "Economic Effects and Structural Determinants of Capital Controls," IMF Working Papers 95/31, International Monetary Fund.
  4. Shang-Jin Wei, 2000. "Does Corruption Relieve Foreign Investors of the Burden of Taxes and Capital Controls?," NBER Chapters, in: International Taxation and Multinational Activity, pages 73-88 National Bureau of Economic Research, Inc.
  5. Cadot, Olivier, 1987. "Corruption as a gamble," Journal of Public Economics, Elsevier, vol. 33(2), pages 223-244, July.
  6. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August.
  7. Axel Dreher & Christos Kotsogiannis & Steve McCorriston, 2007. "Corruption Around the World: Evidence from a Structural Model," Discussion Papers 0702, Exeter University, Department of Economics.
  8. Lederman, Daniel & Loayza, Norman & Reis Soares, Rodrigo, 2001. "Accountability and corruption : political institutions matter," Policy Research Working Paper Series 2708, The World Bank.
  9. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-98, September.
  10. Axel Dreher, 2002. "Does Globalization Affect Growth?," Development and Comp Systems 0210004, EconWPA, revised 04 Feb 2003.
  11. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  12. David Romer, 1997. "Misconceptions and Political Outcomes," NBER Working Papers 6117, National Bureau of Economic Research, Inc.
  13. Drabek, Zdenek & Payne, Warren, 2001. "The impact of transparency on foreign direct investment," WTO Staff Working Papers ERAD-99-02, World Trade Organization (WTO), Economic Research and Statistics Division.
  14. Christopher J. Neely, 1999. "An introduction to capital controls," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 13-30.
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