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Economic Analysis and International Law

Marco Arnone and Leonardo S. Borlini

Corruption presents many legal and regulatory challenges, but these challenges cannot be met by the law in isolation. This book presents economic analysis of crime as an essential tool for shaping an effective legal apparatus. The authors contend that in order to assess whether and how to regulate corruption, it is necessary to start with a thorough inquiry into the causes, institutional and social effects, and most of all, actual and potential economic and financial consequences of crimes. This, they argue, should inform and help shape a balanced legal and regulatory approach to corruption.
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Chapter 3: Corruption and macroeconomic performance

Marco Arnone and Leonardo S. Borlini


In Chapter 2 we discussed the microeconomic effects of corruption: our analysis highlighted the fact that corruption adversely impacts society in the form of a major efficiency loss. Additionally, we noticed that a negative correlation exists between certain variables that are proxies of governance quality and a country's domestic corruption. We showed that a negative correlation also exists between corruption and domestic competitiveness. These relationships call out to policymakers as they show how corruption represents a limit for business competitiveness and a drag on economic development. Economic policies that initiate governance-enhancing reforms can be effective in promoting a country's competitiveness (Alesina and Giavazzi 2006). The literature on the impact of corruption on economic performance is exceptionally wide: the focus of our analysis shifts now from the perspective of firms and markets to the dynamics underlying the determination of macro variables in an economic system. We turn our attention to the effects of corruption on a country's income, trade, and interest rates for both industrialized and developing economies; we also discuss how corruption adversely affects macroeconomic performance indirectly via education or trade flows. The second part of this chapter is devoted to an in-depth analysis of the effects of corruption on the public sector, including its performance during economic cycles. Finally, in the last paragraph our focus broadens to the issue of the persistence of corruption over time.

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