The Effects of Corruption on Trade Flows: A Disaggregated Analysis

  • Subhayu Bandyopadhyay
  • Suryadipta Roy


This paper analyzes the effects of corruption on trade flows for a panel of nations. The novelty of the paper lies in our focus on trade flows at the industry level. Such a focus is important because the emerging literature on trade and institutions suggests that the pattern of comparative advantage between nations may be driven by international differences in institutions, among other factors. We find that exports of certain goods by the developed nations are negatively affected by higher domestic corruption in these nations. Interestingly, corruption in the trading partner also reduces exports of certain goods. Imports seem somewhat less vulnerable to corruption. The analysis uncovers considerable heterogeneity in the effects of corruption on different industries.


Foreign Direct Investment Gross Domestic Product Gravity Model Trade Cost Bilateral Trade 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. Anderson JE (1979) A theoretical foundation for the gravity model. Am Econ Rev 69:106–116Google Scholar
  2. Anderson JE, Marcouiller D (2002) Insecurity and the pattern of trade: an empirical investigation. The Review of Economics and Statistics 84:342–352CrossRefGoogle Scholar
  3. Anderson JE, van Wincoop E (2003) Gravity with gravitas: a solution to the border puzzle. Am Econ Rev 93:170–192CrossRefGoogle Scholar
  4. Belloc M (2006) Institutions and international trade: a reconsideration of comparative advantage. J Econ Surveys 20:3–26CrossRefGoogle Scholar
  5. Bergstrand J (1985) The gravity equation in international trade, some microeconomic foundations and empirical evidence. Rev Econ Stat 67:474–481CrossRefGoogle Scholar
  6. Bergstrand J (1989) The generalized gravity equation, monopolistic competition, and empirical evidence. Rev Econ Stat 71:143–153CrossRefGoogle Scholar
  7. Berkowitz D, Moenius J, Pistor K (2006) Trade, law, and product complexity. Rev Econ Stat 88:363–373CrossRefGoogle Scholar
  8. Deardorff A (1998) Determinants of bilateral trade: does gravity work in a neoclassical world? In: Frankel J (ed) The Regionalization of the World Economy. University of Chicago PressGoogle Scholar
  9. de Groot H, Linders GM, Rietveld P, Subramanian U (2004) The institutional determinants of bilateral trade patterns. Kyklos 57:103–123CrossRefGoogle Scholar
  10. Feenstra RC, Markusen JR, Rose AK (2001) Using the gravity equation to differentiate among alternative theories of trade. Can J Econ 34:430–447CrossRefGoogle Scholar
  11. Francois J, Manchin M (2013) Institutions, infrastructure, and trade. World Dev 46:165–175CrossRefGoogle Scholar
  12. Head K, Mayer T, Ries J (2010) The erosion of colonial trade linkages after independence. J Int Econ 81:1–14CrossRefGoogle Scholar
  13. Helpman E, Krugman P (1985) Market structure and foreign trade. MIT Press, Cambridge, MAGoogle Scholar
  14. Krugman P (1980) Scale economies, product differentiation, and the pattern of trade. Am Econ Rev 70:950–959Google Scholar
  15. Levchenko AA (2007) Institutional quality and international trade. Rev Econ Stud 74:791–819CrossRefGoogle Scholar
  16. Marjit S, Mandal B, Roy S (2014) Trade openness, corruption and factor abundance: evidence from a dynamic panel. Rev Dev Econ 18:45–58CrossRefGoogle Scholar
  17. Markusen JR, Venables AJ (2000) The theory of endowment, intra-industry and multi-national trade. J Int Econ 52:209–234CrossRefGoogle Scholar
  18. Markusen JR (2013) Putting per-capita income back into trade theory. J Int Econ 90:255–265CrossRefGoogle Scholar
  19. Mohlmann LJ, Ederveen S, de Groot H, Linders GM (2010) Intangible barriers to trade: a sectoral approach. In: van Bergeijk PAG, Brakman S (eds) The gravity model in international trade: advances and applications. Cambridge University Press, Cambridge, pp 224–251CrossRefGoogle Scholar
  20. Mundlak Y (1978) On the pooling of time series and cross sectional data. Econometrica 56:69–86CrossRefGoogle Scholar
  21. Nicita A, Olarreaga M (2006) Trade, production and protection 1976–2004. World Bank Econ Rev 21:165–171CrossRefGoogle Scholar
  22. Nunn N (2007) Relationship-specificity, incomplete contracts, and the pattern of trade. Quart J Econ 122:569–600CrossRefGoogle Scholar
  23. Nunn N, Trefler D (2014) Domestic institutions as a source of comparative advantage. In: Gopinath G, Helpman E, Rogoff K (eds) Handbook of international economics, vol 4, North Holland, pp 263–315Google Scholar
  24. Ranjan P, Lee JY (2007) Contract enforcement and international trade. Econ Politics 19:191–218CrossRefGoogle Scholar
  25. Rauch J (1999) Networks versus markets in international trade. J Int Econ 48:7–35CrossRefGoogle Scholar
  26. Trefler D (1995) The case of the missing trade and other mysteries. Am Econ Rev 85:1029–1046Google Scholar
  27. van Bergeijk PAG, Brakman S (2010) The gravity model in international trade: advances and applications. Cambridge University Press, CambridgeCrossRefGoogle Scholar

Copyright information

© Springer India 2016

Authors and Affiliations

  1. 1.Federal Reserve Bank of St. Louis, Research DivisionSt. LouisUSA
  2. 2.IZABonnGermany
  3. 3.Department of EconomicsEarl N. Phillips School of Business, High Point UniversityHigh PointUSA

Personalised recommendations