The Intriguing Nexus between Corruption and Capital Account Restrictions

Dreher, Axel; Siemers, Lars H.R.

doi:10.2139/ssrn.419340

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The Intriguing Nexus between Corruption and Capital Account Restrictions

RWI: Discussion Paper No. 35

Swiss Institute for Business Cycle Research (KOF) Working Paper No. 113

38 Pages Posted: 19 Apr 2004

See all articles by Axel Dreher

Lars H.R. Siemers

University of Siegen

Date Written: November 2005

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.

Keywords: Corruption, capital account restrictions, dynamic panel

JEL Classification: C33, D19, F33, G11, H26, O17

Suggested Citation: Suggested Citation

Dreher, Axel and Siemers, Lars H.R., The Intriguing Nexus between Corruption and Capital Account Restrictions (November 2005). RWI: Discussion Paper No. 35, Swiss Institute for Business Cycle Research (KOF) Working Paper No. 113, Available at SSRN: https://ssrn.com/abstract=419340 or http://dx.doi.org/10.2139/ssrn.419340