Corruption and Openness

37 Pages Posted: 20 Aug 2003

See all articles by Zvika Neeman

Zvika Neeman

Tel Aviv University - Eitan Berglas School of Economics; Boston University - Department of Economics

M. Daniele Paserman

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Avi Simhon

Hebrew University of Jerusalem

Multiple version iconThere are 2 versions of this paper

Date Written: November 2004

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, Openness, Growth

JEL Classification: F2, H0, O1, O4

Suggested Citation

Neeman, Zvika and Paserman, M. Daniele and Simhon, Avi, Corruption and Openness (November 2004). Available at SSRN: https://ssrn.com/abstract=433262 or http://dx.doi.org/10.2139/ssrn.433262

Zvika Neeman

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel

HOME PAGE: http://www.tau.ac.il/~zvika/

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-3184 (Phone)
617-353-4449 (Fax)

M. Daniele Paserman (Contact Author)

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, 91905
Israel
+972 2 588 3365 (Phone)
+972 2 581 6071 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Avi Simhon

Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem 91905, Jerusalem 91905
Israel
+972 2 588 3237 (Phone)
+972 2 581 6071 (Fax)

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