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The Intriguing Nexus Between Corruption and Capital Account Restrictions

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  • Axel Dreher

    (University of Konstanz)

  • Lars-H.R. Siemers

    (Ruprecht-Karls-University of Heidelberg)

Abstract

The paper develops a theoretical model showing a mutual relationship between corruption and capital account restrictions. According to the model, higher corruption induces stricter restrictions and vice versa. We test the model using panel data for 112 countries over the period 1984-2002 and find that corruption and restrictions are indeed mutually determined. Estimating the model simultaneously, capital account restrictions induce higher corruption. Higher corruption, in turn, is associated with more restrictions on the capital account. The empirical relationship is, however, not completely robust.

Suggested Citation

  • Axel Dreher & Lars-H.R. Siemers, 2003. "The Intriguing Nexus Between Corruption and Capital Account Restrictions," Development and Comp Systems 0306004, University Library of Munich, Germany, revised 07 Jul 2005.
    • Handle: RePEc:wpa:wuwpdc:0306004
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    More about this item

    Keywords

    corruption; capital account restrictions; dynamic panel;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D19 - Microeconomics - - Household Behavior - - - Other
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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