Corruption and Openness

Zvika Neeman (), M. Daniele Paserman and Avi Simhon ()

Discussion Paper Series from The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem

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 include 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 both the corruption and openness measures. 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; growth; openness (search for similar items in EconPapers)
JEL-codes: F2 H0 O1 O4 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2004-03
New Economics Papers: this item is included in nep-dev, nep-lam and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Corruption and Openness (2008)
Working Paper: Corruption and Openness (2006)
Working Paper: CORRUPTION AND OPENNESS (2003)
Working Paper: Corruption and Openness (2003)
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