Corruption and Trade in General Equilibrium
30 Pages Posted: 22 Apr 2008
Date Written: April 2008
Abstract
We use the HOSV model of trade to find out a link between corruption and the pattern of trade, not just its effect on the volume of trade. We prove that greater corruption in labor-abundant countries will restrict the volume of world trade while corrupt capital-abundant countries promote trade. This is caused by intermediaries who are engaged in mitigating the transaction cost of corruption. Relatively corrupt economy will export capital-intensive goods. However, relatively capital-abundant country will be worse off with increasing degree of corruption at home and abroad, whereas the labor-abundant country may gain from further corruption.
Keywords: Corruption, International Trade, Factor - intensity, General equilibrium
JEL Classification: O17, F1, D5
Suggested Citation: Suggested Citation
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