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Effects of Economic Openness on Corruption: Firm-level Survey Evidence
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Perverse Effects of Economic Openness on Corruption:
Evidence from Firm-Level Surveys
Celeste Beesley
Abstract: Cross-national studies have shown a negative relationship between corruption and measures of globalization (measured as trade openness and prevalence of FDI). However, the empirical results have not been consistently robust. In addition, theoretical counter-arguments just as plausibly argue for a positive link between corruption and “international” exposure. Using the World Bank-EBRD's Business Environment and Enterprise Performance (BEEPS) data from East Europe and the former Soviet Union, this project examines the firm-level variation in “illegal unofficial payments” in 27 countries. Foreign ownership is found to be an insignificant determinant of the bribe-paying behavior of firms. Trade, however, appears to interact with the regulatory environment. Trading firms pay bribes at a higher rate than their non-trading counterparts in spite of the supposedly greater competition that they face by engaging in the international market. Even in countries belonging to supranational organizations such as the EU and the WTO (which ought to lower trade barriers and may also have selection effects or lower corruption through others mechanisms like norm diffusion), firms that trade pay more than non-trading firms in countries outside of these international organizations. This corruption effect for trading firms is smaller, but still significant, in countries that have fewer administrative obstacles to importing and exporting activities This finding implies that the corruption effects of trade exposure may be reduced by removing certain types customs barriers, but that trade openness, at the level experienced by firms in the BEEPS countries, is not sufficient to be considered an anti-corruption mechanism.
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| | Authors: Beesley, Celeste. |
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Perverse Effects of Economic Openness on Corruption:
Evidence from Firm-Level Surveys
Celeste Beesley
Abstract: Cross-national studies have shown a negative relationship between corruption and
measures of globalization (measured as trade openness and prevalence of FDI). However, the
empirical results have not been consistently robust. In addition, theoretical counter-arguments
just as plausibly argue for a positive link between corruption and “international” exposure. Using
the World Bank-EBRD's Business Environment and Enterprise Performance (BEEPS) data from
East Europe and the former Soviet Union, this project examines the firm-level variation in
“illegal unofficial payments” in 27 countries. Foreign ownership is found to be an insignificant
determinant of the bribe-paying behavior of firms. Trade, however, appears to interact with the
regulatory environment. Trading firms pay bribes at a higher rate than their non-trading
counterparts in spite of the supposedly greater competition that they face by engaging in the
international market. Even in countries belonging to supranational organizations such as the EU
and the WTO (which ought to lower trade barriers and may also have selection effects or lower
corruption through others mechanisms like norm diffusion), firms that trade pay more than non-
trading firms in countries outside of these international organizations. This corruption effect for
trading firms is smaller, but still significant, in countries that have fewer administrative obstacles
to importing and exporting activities This finding implies that the corruption effects of trade
exposure may be reduced by removing certain types customs barriers, but that trade openness, at
the level experienced by firms in the BEEPS countries, is not sufficient to be considered an anti-
corruption mechanism.
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