Corruption, capital account liberalization, and economic growth : Theory and evidence

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

18 Scopus Citations
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Author(s)

  • Takuma Kunieda
  • Keisuke Okada
  • Akihisa Shibata

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)80-108
Journal / PublicationInternational Economics
Volume139
Online published20 Mar 2014
Publication statusPublished - Oct 2014

Abstract

We investigate, both theoretically and empirically, how the negative effect of government corruption on economic growth is magnified or reduced by capital account liberalization. Our model shows that highly corrupt countries impose higher tax rates than do less corrupt countries, thereby magnifying the negative impact of government corruption on economic growth in highly corrupt countries and reducing the impact in less corrupt countries if capital account liberalization is enacted. Empirical evidence obtained from an analysis of panel data collected from 109 countries is consistent with our theoretical predictions, namely the interaction term of government corruption and financial openness has a significant and negative impact on economic growth, implying that financial openness magnifies the negative effect of government corruption on economic growth. Our theoretical and empirical results contribute to the recent policy debates on the merits and demerits of capital account liberalization. © 2014 CEPII (Centre d[U+05F3]Etudes Prospectives et d[U+05F3]Informations Internationales), a center for research and expertise on the world economy.

Research Area(s)

  • Capital account liberalization, Economic growth, Government corruption, Two-country model

Citation Format(s)

Corruption, capital account liberalization, and economic growth : Theory and evidence. / Kunieda, Takuma; Okada, Keisuke; Shibata, Akihisa.

In: International Economics, Vol. 139, 10.2014, p. 80-108.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal