Corruption, trade and institutional reforms
by Rafael S. Espinosa-Ramírez
International Journal of Trade and Global Markets (IJTGM), Vol. 8, No. 2, 2015

Abstract: Corruption impacts not only the domestic economic performance, but trade as well. Corruption works as a barrier of trade and institutional reforms seem to be the solutions to this disturbance. However, the benefit of institutional reforms is not clear as there is some structural inefficiency that hampers the positive effect of such reforms. We develop a political-economic model in which a corrupted government in a country try to set an optimal institutional level taking into account the cost of this policy on trade, on a competing and corrupted domestic firm and the benefit of two kind of people: honest and dishonest. We analyse the policy decision taking into account a political contribution made by a corrupted lobby group in order to benefit themselves from a lower institutional level. Our results suggest that the optimal institutional level depend on the degree of efficiency of the competing firms and the level of corruption of the government.

Online publication date: Fri, 15-May-2015

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