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The Intriguing Nexus between Corruption and Capital Account Restrictions

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  • Dreher, Axel
  • Siemers, Lars-H. R.

Abstract

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.

Suggested Citation

  • Dreher, Axel & Siemers, Lars-H. R., 2005. "The Intriguing Nexus between Corruption and Capital Account Restrictions," RWI Discussion Papers 35, RWI - Leibniz-Institut für Wirtschaftsforschung.
    • Handle: RePEc:zbw:rwidps:35
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    Cited by:

    1. Axel Dreher & Bernhard Herz & Volker Karb, 2006. "Is there a causal link between currency and debt crises?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(4), pages 305-325.
    2. Bretschger, Lucas, 2010. "Taxes, mobile capital, and economic dynamics in a globalizing world," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 594-605, June.
    3. Aizenman, Joshua & Noy, Ilan, 2006. "FDI and trade--Two-way linkages?," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(3), pages 317-337, July.
    4. Friedrich Schneider, 2006. "Shadow Economies and Corruption all over the World: What do we really Know?," CESifo Working Paper Series 1806, CESifo.
    5. Joshua Aizenman & Ilan Noy, 2009. "Endogenous Financial and Trade Openness," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 175-189, May.
    6. Dreher, Axel & Kotsogiannis, Christos & McCorriston, Steve, 2007. "Corruption around the world: Evidence from a structural model," Journal of Comparative Economics, Elsevier, vol. 35(3), pages 443-466, September.
    7. Axel Dreher & Jan-Egbert Sturm & Heinrich Ursprung, 2008. "The impact of globalization on the composition of government expenditures: Evidence from panel data," Public Choice, Springer, vol. 134(3), pages 263-292, March.
    8. Axel Dreher & Friedrich Schneider, 2010. "Corruption and the shadow economy: an empirical analysis," Public Choice, Springer, vol. 144(1), pages 215-238, July.
    9. Schupp, Claudia & Wache, Benjamin, 2014. "Wie groß ist der Einfluss von deutschen Wirtschaftsforschungsinstituten? Ein Ranking anhand von RePEc-Daten [How large is the influence of German economic research institutes? A ranking analysis us," MPRA Paper 55519, University Library of Munich, Germany.
    10. Schneider, Friedrich G. & Buehn, Andreas, 2009. "Shadow economies and corruption all over the world: revised estimates for 120 countries," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 1, pages 1-53.
    11. Markus Leibrecht & Claudia Hochgatterer, 2012. "Tax Competition As A Cause Of Falling Corporate Income Tax Rates: A Survey Of Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 26(4), pages 616-648, September.
    12. Joshua Aizenman & Ilan Noy, 2003. "Endogenous Financial Openness: Efficiency and Political Economy Considerations," NBER Working Papers 10144, National Bureau of Economic Research, Inc.
    13. Martin Gassebner & Alexander Keck & Robert Teh, 2010. "Shaken, Not Stirred: The Impact of Disasters on International Trade," Review of International Economics, Wiley Blackwell, vol. 18(2), pages 351-368, May.
    14. Joshua Aizenman & Ilan Noy, 2008. "Links between Trade and Finance: A Disaggregated Analysis," NBER Chapters, in: Financial Markets Volatility and Performance in Emerging Markets, pages 9-28, National Bureau of Economic Research, Inc.
    15. Schneider, Friedrich G., 2007. "Shadow Economies and Corruption All Over the World: New Estimates for 145 Countries," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 1, pages 1-66.
    16. De Santis, Roberto A. & Lührmann, Melanie, 2006. "On the determinants of external imbalances and net international portfolio flows: a global perspective," Working Paper Series 651, European Central Bank.
    17. Hartwell, Christopher A., 2011. "All That’s Old is New Again: Capital Controls and the Macroeconomic Determinants of Entrepreneurship in Emerging Markets," MPRA Paper 40257, University Library of Munich, Germany.
    18. Axel Dreher, 2006. "Does globalization affect growth? Evidence from a new index of globalization," Applied Economics, Taylor & Francis Journals, vol. 38(10), pages 1091-1110.
    19. Gassebner, Martin & Keck, Alexander & Teh, Robert, 2006. "The impact of disasters on international trade," WTO Staff Working Papers ERSD-2006-04, World Trade Organization (WTO), Economic Research and Statistics Division.
    20. Axel Dreher & Thomas Herzfeld, 2005. "The Economic Costs of Corruption: A Survey and New Evidence," Public Economics 0506001, University Library of Munich, Germany.
    21. De Santis, Roberto A. & Lührmann, Melanie, 2009. "On the determinants of net international portfolio flows: A global perspective," Journal of International Money and Finance, Elsevier, vol. 28(5), pages 880-901, September.
    22. Becerra, O. & Cavallo, E. & Scartascini, C., 2012. "The politics of financial development: The role of interest groups and government capabilities," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 626-643.
    23. Joshua Aizenman & Ilan Noy, 2004. "Endogenous Financial and Trade Openness: Efficiency and Political Economy Considerations," Working Papers 200404, University of Hawaii at Manoa, Department of Economics.

    More about this item

    Keywords

    Corruption; capital account restrictions; dynamic panel;

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D19 - Microeconomics - - Household Behavior - - - Other
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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