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Natural openness and good government

  • Shang-Jin Wei

The author offers a possibly new interpretation of the connection between openness and good governance, with a conceptual model and some empirical evidence. Assuming that corruption and bad governance reduce international trade and investment more than domestic trade and investment, a"naturally more open economy"-as determined by its size and geography-would devote more resources to building good institutions and would display less corruption in equilibrium. How is"natural openness"defined? By size, geography, and language. France would be more naturally open than Argentina because Argentina is more remote. Ability to speak English facilitates international trade. A country with a long coast tends to be more open than a landlocked country. In the data,"naturallymore open economies"do show less corruption even after their level of development is taken into account."Residual openness"-which could include trade policies-is not important once"natural openness"is accounted for. Moreover,"naturally more open economies"also tend to pay civil servants salaries that are more competitive with those of their private sector counterparts. One implication of this research is that globalization may affect governance: as globalization deepens, the"natural openness"of all countries increases. This raises the opportunity cost of tolerating a given level of corruption and could provide new impetus for countries to fight corruption. These patterns are consistent with the conceptual model.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2411.

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Date of creation: 31 Aug 2000
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Handle: RePEc:wbk:wbrwps:2411
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  1. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
  2. Andrei Shleifer & Robert W. Vishny, 1998. "The Quality of Government," Harvard Institute of Economic Research Working Papers 1847, Harvard - Institute of Economic Research.
  3. Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, vol. 47(1), pages 61-95, June.
  4. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," NBER Working Papers 6030, National Bureau of Economic Research, Inc.
  5. Rose, Andrew K, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," CEPR Discussion Papers 2329, C.E.P.R. Discussion Papers.
  6. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
  7. Kaufman, Daniel & Shang-Jin Wei, 1999. "Does"grease money"speed up the wheels of commerce?," Policy Research Working Paper Series 2254, The World Bank.
  8. Fisman, Raymond & Gatti, Roberta, 2000. "Decentralization and corruption - evidence across countries," Policy Research Working Paper Series 2290, The World Bank.
  9. Rauch, James E & Evans, Peter B., 1999. "Bureaucratic Structure and Bureaucratic Performance in Less Developed Countries," University of California at San Diego, Economics Working Paper Series qt0sb0w38d, Department of Economics, UC San Diego.
  10. Shang-Jin Wei, 1996. "Intra-National versus International Trade: How Stubborn are Nations in Global Integration?," NBER Working Papers 5531, National Bureau of Economic Research, Inc.
  11. International Monetary Fund, 1997. "Corruption and the Rate of Temptation; Do Low Wages in the Civil Service Cause Corruption?," IMF Working Papers 97/73, International Monetary Fund.
  12. Daniel Kaufmann & Shang-Jin Wei, 2000. "Does 'Grease Money' Speed Up the Wheels of Commerce?," IMF Working Papers 00/64, International Monetary Fund.
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