Corruption, Delays, and the Pattern of Trade

• Main Authors: DO, Quoc-Anh, Serfaty-de Medeiros, Karine
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2008
• Subjects: Corruption; Pattern of Trade; Time-Sensitivity; Gravity; Bilateral Trade Flows; Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/1471; https://ink.library.smu.edu.sg/context/soe_research/article/2470/viewcontent/Do_Serfaty_de_Medeiros_2008_corruption_trade.pdf
• Institution: Singapore Management University

We argue that corruption deters international trade by causing delays in exporting and importing, both at customs and in other required administrative procedures. We study three manifestations of corruption as a barrier to trade. The corruption effect is both significant and economically sizeable. We first show the negative relationship between the exporters and importers levels of corruption and trade volumes at the country level in a gravity framework. This country-level effect implies that a standard deviation increase in the exporters corruption level causes a 27% drop in exports. We then show that corruption indeed operates through delays: we establish that this effect stronger in sectors in which goods are more time-sensitive. The magnitude of this interaction effect is large: a standard deviation increase in the exporters corruption level causes a decrease in exports ranging from 7% in the least time-sensitive sector to 42% in the most time-sensitive sector. Finally, we find that corruption also decreases more the probability of positive trade in sectors in which goods are more time-sensitive. We use unpredictability of sales as our measure of time-sensitivity. Our results are robust both to controlling for a variety of alternative explanations and to instrumenting corruption to alleviate concerns of endogeneity.