An Empirical Investigation Between Trade Liberalization And Corruption: A Panel Data Approach

Abstract

The present study empirically investigates the relationship between trade liberalization and corruption, using data from twenty four countries divided into three panels: low income, middle income and high income countries for a 13 years period, from 1995-2007. That period is taken to see this effect after the establishment of WTO.  Many other economic and non economic variables have also been incorporated in this study. Fixed effect model have been used for estimation. The results show that trade liberalization is both statistically significant and negatively correlated to the corruption level of these countries included in the study. The results are robust even after controlling for other variables like economic freedom, democracy, size of bureaucracy, average income level and level of education. The focus of study is mainly on South Asian nations. Because according to the recent survey published by Transparency International related to Corruption, these nations are at the bottom of ranking ladder.

Keywords: Corruption, Trade liberalization, Economic Freedom, Bureaucracy, Education.