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How corruption affects persistent capital flows

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  • Johann Lambsdorff

Abstract

Corruption is known to reduce the ratio of investment to GDP. This study breaks down investment into domestic savings and net capital inflows. A significant impact of corruption exists only for the latter variable because the first variable is distorted by general equilibrium repercussions. An increase in Colombia’s level of integrity to that of the United Kingdom is found to increase net annual capital inflows by 3 percent of GDP. Decomposing this impact reveals that bureaucratic quality, civil liberty and government stability are irrelevant, but that a country’s law and order tradition is a crucial sub-component for attracting capital. Copyright Springer-Verlag Berlin/Heidelberg 2003

Suggested Citation

  • Johann Lambsdorff, 2003. "How corruption affects persistent capital flows," Economics of Governance, Springer, vol. 4(3), pages 229-243, November.
    • Handle: RePEc:spr:ecogov:v:4:y:2003:i:3:p:229-243
    DOI: 10.1007/s10101-002-0060-0
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