Corruption and Economic Development

Sule Akkoyunlu () and Debora Ramella ()
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Sule Akkoyunlu: METU - ANKARA
Debora Ramella: Università degli Studi di Torino

No 6908696, Proceedings of Economics and Finance Conferences from International Institute of Social and Economic Sciences

Abstract: This study investigates the impact of openness to trade and corruption on economic development for a cross-section of 143 countries for the year 2000 by analysing the effects of trade openness and corruption on income, productivity, innovation, and income inequality. Institutional, cultural and geographical factors, and country size are controlled for in the analysis. An instrumental variable approach has been adopted in order to address the endogeneity of corruption and openness to trade. The age of democracy and gravity-based predictors are chosen as the instruments for corruption and openness to trade, respectively. The estimates show that corruption negatively affects income per capita, productivity, and innovation, while it does not significantly impact income inequality (Gini). The control of corruption and the openness to trade affect output per worker through the total factor productivity. Both the control of corruption and openness to trade are statistically significant determinants of the 90/10 income gap. Landlockedness affects Gini Index directly, even after controlling for trade and corruption. These findings have important policy implications. For example, on the basis of the estimates, if Botswana improved its control of corruption to reach the level of Finland, its per capita income would rise by 2.7 times.

Keywords: Coruption; Economic; DevelopmentTrade (search for similar items in EconPapers)
Pages: 33 pages
Date: 2018-10
New Economics Papers: this item is included in nep-gro
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Published in Proceedings of the Proceedings of the 10th Economics & Finance Conference, Rome, Oct 2018, pages 1-33

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Persistent link: https://EconPapers.repec.org/RePEc:sek:iefpro:6908696

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