This paper explores the association between corruption and trade policy. A non-technical theoretical framework first outlines the effects of corruption on non-tariff barriers at the political and bureaucratic level. Both parts have incentives to accept bribes in exchange for increasing barriers. These considerations include politicians’ re-election motives, implying that free information may weaken the association between corruption and trade barriers. I employ panel data on corruption and non-tariff barriers in three periods 1995–2005. The results show that corruption tends to lead to higher non-tariff barriers. The effectiveness of corruption in buying barriers varies with the degree of press freedom and GDP per capita.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Price includes VAT (USA)
Tax calculation will be finalised during checkout.
A previous working paper version of this paper (available online) outlined a simple, mathematical formulation of the following intuitive arguments.
The Fraser Institute actually makes this point in their annual report, stating that administrative factors influencing trade are sometimes “the result of inefficiency while in other instances they reflect the actions of corrupt officials seeking to extract bribes” (Gartzke et al. 2005, 8).
Note that although the question on regulatory barriers mentions official tariff barriers and might therefore simply proxy for tariffs, this problem is solved in the empirics by the inclusion of the average tariff rate. This way, the measured effects come to pertain to the NTBs and not official barriers.
These data are from Bjørnskov (2008), calculated on the basis of the party categorizations in Beck et al. (2001); this source also provides the measure of political competition. Although political ideology is difficult to quantify, a problem that has been discussed in a voluminous literature (Keman 2007; McDonald et al. 2007; Potrafke 2009; Powell 2009), most different coding schemes correlate highly with each other despite their different procedures and starting points, and tend to yield similar results (Potrafke 2010).
A number of studies have recently started using the more conservative binary democracy indicator from Cheibub et al. (2010). However, within the present sample, the two indices produce virtually the same scores. I therefore opt for the better known measure from Freedom House.
The human rights database is outlined in CIRI (2007). An earlier version of this paper also included a small extreme bounds analysis, including government expenditures, legal quality, average years of school and the secondary schooling completion ratio, the number of veto players in politics, population size, a dummy for the Nordic countries, the Fraser Institute measure of regulatory freedom, and a dummy for presidential systems. These and similar variables were chosen based on existing literature on corruption and on concerns that specific variables might confound NTBs and corruption (Treisman 2000, 2007; Aidt 2003; Glaeser and Saks 2006; Potrafke 2012). Likewise, I performed a set of country jackknife exercises. However, all findings proved to be robust in an extreme bounds sense and robust in the jackknife. These analyses are all available in an online appendix.
The tests reported in this subsection are naturally not the only robustness tests one would ideally perform. An appendix available online provides further support for the main estimates by adding a set of additional control variables, performing a small extreme bounds analysis, region and country jackknife estimates, and testing the stability of estimates to allowing for an AR 1 disturbance within the error terms. All central estimates remain stable and significant.
The Kaufmann indices have been criticized due to the very high correlations between the six components of institutional quality and capacity, which may invalidate the use of any single index and violate their comparability over time (Knack and Langbein 2010; Shah 2008). Instead, the data are more likely to be reflections of the overall institutional environment at one point in time instead of precise measures of corruption. In the present data, the simple correlation between the two corruption indices is above 0.9, yet the correlation between the Kaufmann control of corruption index and the Fraser Institute index of legal quality is virtually the same as that with corruption. Running a fixed effects regression of the Kaufmann corruption index on the index from Transparency International reveals that it only explains about 20 % of the within-country variation. Hence, it is unclear whether the Kaufmann data measure corruption or the rule of law.
Ades, A., & di Tella, R. (1999). Rents, competition, and corruption. American Economic Review, 89(4), 982–993.
Aidt, T. (2003). Economic analysis of corruption: A survey. The Economic Journal, 113(Nov), F632–652.
Andersson, J. E., & Marcouiller, D. (2002). Insecurity and the pattern of trade: An empirical investigation. Review of Economics and Statistics, 84(2), 342–352.
Beck, T., Clarke, G., Groff, A., Keefer, P., & Walsh, P. (2001). New tools in comparative political economy: The database of political institutions. World Bank Economic Review, 15(1), 165–176.
Bjørnskov, C. (2008). The growth-inequality association: Government ideology matters. Journal of Development Economics, 87(2), 300–308.
Bjørnskov, C. (2011). Combatting corruption: On the interplay between institutional quality and social trust. Journal of Law and Economics, 54(1), 135–159.
Cassing, J. H., & Hillman, A. L. (1985). Political influence motives and the choice between tariffs and quotas. Journal of International Economics, 19(3–4), 279–290.
Cheibub, J. A., Gandhi, J., & Vreeland, J. R. (2010). Democracy and dictatorship revisited. Public Choice, 143(1–2), 67–101.
CIA (2009). The CIA world factbook 2009. Washington, DC: Central Intelligence Agency.
CIRI (2007). Cingranelli-Richards human rights data project. Available at http://ciri.binghamton.edu/. Accessed May, 2007.
Djerdian, D. O. (2010). Economics versus politics in trade policy. Review of World Economics/Weltwirtschaftliches Archiv, 146(2), 223–240.
Dreher, A., Kotsogiannis, C., & McCorriston, S. (2007). Corruption around the world: Evidence from a structural model. Journal of Comparative Economics, 35(3), 443–466.
Dreher, A., Kotsogiannis, C., & McCorriston, S. (2009). How do institutions affect corruption and the shadow economy? International Tax and Public Finance, 16(6), 773–796.
Dreher, A., & Siemers, L. H. R. (2009). The nexus between corruption and capital account restrictions. Public Choice, 140(1), 245–265.
Dutt, P., & Mitra, D. (2005). Political ideology and endogenous trade policy: An empirical investigation. Review of Economics and Statistics, 87(1), 59–72.
Ferraz, C., & Finan, F. (2008). Exposing corrupt politicians: The effects of Brazil’s publicly released audits on electoral outcomes. Quarterly Journal of Economics, 123(2), 703–745.
Freedom House (2008). Freedom in the World 2008. The annual survey of political rights and civil liberties. Lanham, MD: Rowman and Littlefield.
Gartzke, E., Gwartney, J. D., & Lawson, R. A. (2005). Economic freedom of the world: 2005 Annual report. Vancouver: The Fraser Institute.
Gawande, K., & Bandyopadhyay, U. (2000). Is protection for sale? Evidence on the Grossman-Helpman theory of endogenous protection. Review of Economics and Statistics, 82(1), 139–152.
Gerring, J., & Thacker, S. C. (2005). Do neoliberal policies deter political corruption? International Organization, 59(1), 233–254.
Glaeser, E. L., & Saks, R. (2006). Corruption in America. Journal of Public Economics, 90(3), 1053–1072.
Goldberg, P. K., & Maggi, G. (1999). Protection for sale: An empirical investigation. American Economic Review, 89(5), 1135–1155.
Groot, H. L. F. de, Linders, G.-J., Rietveld, P., & Subramaniam, U. (2004). The institutional determinants of bilateral trade patterns. Kyklos, 57(1), 103–123.
Grossman, G. M., & Helpman, E. (1994). Protection for sale. American Economic Review, 84(4), 833–850.
Gwartney, J. D., & Lawson, R. A. (2009). Economic freedom of the world: 2009 Annual report. Vancouver: The Fraser Institute.
Heston, A., Summers, R., & Aten, B. (2006). Penn world tables, version 6.2. Center for International Comparisons (CICUP), University of Pennsylvania.
Hillman, A. L. (1982). Declining industries and political-support protectionist motives. American Economic Review, 72(5), 1180–1187.
Hillman, A. L. (1989). The political economy of protection. London: Routledge.
Hillman, A. L., & Katz, E. (1987). Hierarchical structure and the social costs of bribes and transfers. Journal of Public Economics, 34(2), 142–219.
Hranaiova, J., & Gorter, H. (2005). Rent seeking with politically contestable rights to tariff-rate import quotas. Review of International Economics, 13(4), 805–821.
Inglehart, R., & Baker, W. E. (2000). Modernization, cultural change, and the persistence of traditional values. American Sociological Review, 65(1), 19–51.
Jong, E. de, & Bogmans, C. (2011). Does corruption discourage international trade? European Journal of Political Economy, 27(2), 385–398.
Kaempher, W. H., & Willett, T. D. (1989). Combining rent-seeking and public choice theory in the analysis of tariffs versus quotas. Public Choice, 63(1), 79–86.
Kaufmann, D., Kraay, A., & Mastruzzi, M. (2006) Measuring corruption: Myths and reality. Unpublished manuscript, Washington, DC: The World Bank.
Kaufmann, D., Kraay, A., & Mastruzzi, M. (2009). Governance matters VIII: Aggregate and individual governance indicators, 1996–2008. (Policy Research Working Paper 4978). Washington, DC: World Bank.
Keman, H. (2007). Experts and manifestos: Different sources—same results for comparative research? Electoral Studies, 26(1), 76–89.
Klitgaard, R. (1988). Controlling corruption. Berkeley: University of California Press.
Knack, S. (2007). Measuring corruption: A critique of indicators in Eastern Europe and Central Asia. Journal of Public Policy, 27(3), 255–291.
Knack, S., & Azfar, O. (2003). Trade intensity, country size and corruption. Economics of Governance, 4(1), 1–18.
Knack, S., & Langbein, L. (2010). The worldwide governance indicators and tautology: Six, one, or none? Journal of Development Studies, 46(2), 350–370.
Krueger, A. (1974). The political economy of the rent-seeking society. American Economic Review, 64(3), 291–303.
Le, Q., & Rishi, M. (2006). Corruption and capital flight: An empirical assessment. International Economic Journal, 20(4), 523–540.
Lee, Y., & Azfar, O. (2008). Corruption and trade regulations: An instrumental variables approach. Applied Economics Letters, 15(3), 231–234.
Leeson, P. (2008). Media freedom, political knowledge, and participation. Journal of Economic Perspectives, 22(2), 155–169.
McDonald, M. D., Mendes, S. M., & Kim, M. (2007). Cross-temporal and cross-national comparisons of party left–right positions. Electoral Studies, 26(1), 62–75.
Milner, H. V., & Judkins, B. (2004). Partisanship, trade policy, and globalization: Is there a left–right divide on trade policy? International Studies Quarterly, 48(1), 95–119.
Olken, B. A. (2009). Corruption perceptions vs. corruption reality. Journal of Public Economics, 93(7–8), 950–964.
Paldam, M. (2001). Corruption and religion: Adding to the economic model. Kyklos, 54(2–3), 383–414.
Potrafke, N. (2009). Does government ideology influence political alignment with the U.S.? An empirical analysis of voting in the UN General Assembly. Review of International Organizations, 4(3), 245–268.
Potrafke, N. (2010). Does government ideology influence deregulation of product markets? Empirical evidence from OECD countries. Public Choice, 143(1), 135–155.
Potrafke, N. (2012). Intelligence and corruption. Economics Letters, 114(1), 109–112.
Powell, G. B, Jr. (2009). The ideological congruence controversy: The impact of alternative measures, data and time periods on the effects of election rules. Comparative Political Studies, 42(12), 1475–1497.
Ray, E. J. (1981). The determinants of tariff and nontariff trade restrictions in the United States. Journal of Political Economy, 89(1), 105–121.
Rose-Ackerman, S. (1997). The political economy of corruption. In K. A. Elliott (Ed.), Corruption and the global economy (pp. 31–60). Washington, DC: Institute for International Economics.
Sandholz, W., & Gray, M. M. (2003). International integration and national corruption. International Organization, 57(4), 761–800.
Shah, A. (2008). Worldwide governance indicators: Tools for good governance or misinformation. Unpublished manuscript. Washington, DC: The World Bank.
Smith, A. (1977 ) An inquiry into the nature and causes of the wealth of nations. Chicago: University Of Chicago Press.
Staiger, D., & Stock, J. H. (1997). Instrumental variables regression with weak instruments. Econometrica, 65(3), 557–586.
Transparency International (2008). Transparency international corruption perceptions index 2008. Press Release, Berlin, October.
Treisman, D. (2000). The causes of corruption. A cross-national study. Journal of Public Economics, 76(3), 399–457.
Treisman, D. (2007). What have we learned about the causes of corruption from ten years of cross-national empirical research? Annual Review of Political Science, 10, 211–244.
Tullock, G. (1967). The welfare costs of tariffs, monopolies, and theft. Western Economic Journal, 5(3), 224–232.
USDS (2009). International religious freedom report 2009. Washington, DC: United States Department of State.
World Bank (2009). World development indicators. Database. Washington, DC: The World Bank.
Electronic supplementary material
Below is the link to the electronic supplementary material.
See Table 6.
About this article
Cite this article
Bjørnskov, C. Can bribes buy protection against international competition?. Rev World Econ 148, 751–775 (2012). https://doi.org/10.1007/s10290-012-0128-z
- Trade policy
- Press freedom