Trade Openness and Corruption Revisited: Do Institutions matter?

Abstract

There is a strand of literature that investigates the relationship between openness and levels of domestic corruption. In this paper this relationship is revisited, only this time the issue of heterogeneity of the institutional quality among different states is controlled for in the estimations. Furthermore panel data methods are used along with the more traditional approach as a further robustness check. The results suggest that the relationship is greatly influenced by the quality of domestic institutions; under a certain threshold of institutional quality the proposed relationship ceases to exist. The paper further discusses possible implications that trends in international openness and corruption might have for the interpretation of the results.