Defining, Measuring, Explaining and Reducing the Cost of International Trade
6. Corruption and trade costs Views on corruption and economic development have fluctuated. In the 1960s and 1970s some writers cast corruption in a positive light, as a way of avoiding onerous restrictions in over-regulated economies. During the 1990s, however, the dominant view became hostile, and was supported by cross-country econometric studies using various survey-based measures of corruption. By the 2000s, poor institutions, a concept often treated as largely synonymous with corruption, were increasingly seen as the critical determinant of poor economic performance. Yet as Pranab Bardhan (2006) has stressed, corruption can operate in both directions: bureaucrats can request bribes to do their jobs or accept bribes to do what they are not supposed to do. These two elements are nowhere clearer than in customs services, where there is much anecdotal evidence of extortion (with the threat of delay if a bribe is not paid) and evasion (e.g. allowing dutiable goods free passage, accepting under-invoiced declarations or reclassifying imports to a lower tariff line in return for a bribe). CORRUPTION: GREASING THE WHEELS OF COMMERCE OR PUTTING SAND IN THE WHEELS? Pushan Dutt and Daniel Traca (2010), using a gravity model with corruption as one of the controls, find evidence of both extortion and evasion. Corruption taxes trade when tariffs are low, but beyond a certain level of protection it becomes trade-enhancing. The threshold tariff rate varies from 19 per cent to 43 per cent depending on the specification, which implies that the negative effect is dominant but a positive...
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