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Financial Liberalisation, Bureaucratic Corruption and Economic

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  • Blackburn, Keith
  • Forgues-Puccio, Gonzalo F.

Abstract

We study the effect of international financial integration on economic development when the quality of governance may be compromised by corruption. Our analysis is based on a dynamic general equilibrium model of a small economy in which growth is driven by capital accumulation and public policy is administered by government- appointed bureaucrats. Corruption may arise due to the opportunity for bureaucrats to embezzle public funds, an opportunity that is made more attractive by financial liberalisation which, at the same time, raises efficiency in capital production. Our main results may be summarised as follows: (1) corruption is always bad for economic development, but its effect is worse if the economy is open than if it is closed; (2) the incidence of corruption may, itself, be affected by both the development and openness of the economy; (3) financial liberalisation is good for development when governance is good, but may be bad for development when governance is bad; and (4) corruption and poverty may co-exist as permanent, rather than just transitory, fixtures of an economy.

Suggested Citation

  • Blackburn, Keith & Forgues-Puccio, Gonzalo F., 2006. "Financial Liberalisation, Bureaucratic Corruption and Economic," Proceedings of the German Development Economics Conference, Berlin 2006 8, Verein für Socialpolitik, Research Committee Development Economics.
    • Handle: RePEc:zbw:gdec06:4731
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    Cited by:

    1. Keith Blackburn & Yuanyuan Wang, 2010. "Growth and Development Under Alternative Corruption Regimes," Centre for Growth and Business Cycle Research Discussion Paper Series 137, Economics, The University of Manchester.
    2. M. Emranul Haque, 2012. "Unproductive Education in a Model of Corruption and Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 178, Economics, The University of Manchester.
    3. M. Emranul Haque & Babar Hussain, 2013. "Unproductive Education in a Model of Corruption and Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 179, Economics, The University of Manchester.
    4. Keith Blackburn & Yuanyuan Wang, 2009. "Uncertainty, Entrepreneurship and the Organisation of Corruption," Centre for Growth and Business Cycle Research Discussion Paper Series 133, Economics, The University of Manchester.

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    More about this item

    Keywords

    Corruption; development; financial liberalisation;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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