How export shocks corrupt: Theory and evidence

Abstract

In this article we uncover a positive effect of both export booms and busts on firm-level corruption. Our theory underlines the central role played by human capital in the underlying mechanism. In low human capital settings, export-related revenues are highly elastic to incremental gains of export shares, thence pushing firms to intensify corruption with export busts so as to avoid a radical drop in their revenues. In high human capital settings, export booms lead to more corruption as an increment of export share achieved through bribery concerns a large export market. We corroborate these findings with an extensive database of some 48,000 firms from 72 developing and transition economies, surveyed over 2006-2017. Besides confirming that export booms and busts corrupt and highlighting the mediating role of human capital, we also highlight the corruption-deterrent effect institutions during export market expansion and contraction.

Keywords: Corruption, Bribery, Export shocks, Human capital.

JEL Classification: D73, F19, 017