Corruption and Openness

Zvika Neeman (), M. Daniele Paserman and Avi Simhon ()
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Avi Simhon: The Hebrew University of Jerusalem

No 164, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: We report an intriguing empirical observation. The relationship between corruption and output depends on the economy's degree of openness: in open economies, corruption and GNP per capita are strongly negatively correlated, but in closed economies there is no relationship at all. This stylized fact is robust to a variety of different empirical specifications. In particular, the same basic pattern persists if we use alternative measures of openness, if we focus on different time periods, if we restrict the sample to nclude only highly corrupt countries, if we restrict attention to specific geographic areas or to poor countries, and if we allow for the possible endogeneity of the corruption measure. We find that the extent to which corruption affects output is determined primarily by the degree of financial openness. The difference between closed and open economies is mainly due to the different effect of corruption on capital accumulation. We present a model, consistent with these findings, in which the main channel through which corruption affects output is capital drain.

Keywords: corruption; openness; growth (search for similar items in EconPapers)
JEL-codes: F2 H0 O1 O4 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-dev, nep-pol and nep-reg
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Corruption and Openness (2008)
Working Paper: Corruption and Openness (2004)
Working Paper: CORRUPTION AND OPENNESS (2003)
Working Paper: Corruption and Openness (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed006:164

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