The Political Economics of Trade Openness and Its Impacts on CorruptionOrhan Cengiz
Developing countries are exposed to various risks as they open their economies. While becoming more integrated with the global economy and removing trade barriers is expected to improve efficiency in resource allocation and increase welfare, in many countries this does not occur. In addition to the economic consequences of trade openness, its impact on political and institutional structures is significant for developing countries as removing trade barriers in pursuit of trade liberalization can lead to rent-seeking activities. This study investigates the impact of trade openness on corruption using the Augmented Mean Group (AMG) method with data from Turkey and selected MENA countries over the period 1996-2018. The results show that trade openness reduces control of corruption, while economic growth, the rule of law, and public expenditures increase control of corruption. In addition, Dumitrescu-Hurlin’s (2012) causality test findings reveal the existence of different linkages between variables.
Ticari Açıklığın Siyasal İktisadı ve Yolsuzluk Üzerindeki EtkileriOrhan Cengiz
Gelişmekte olan ülkelerin dışa açılma ile beraber maruz kaldıkları çeşitli riskler söz konusudur. Küresel ekonomiyle daha fazla bütünleşmenin ve ticari engellerin kaldırılmasının, kaynak dağılımında verimliliği sağlaması ve refahı artırması beklenirken, bu durum birçok ülkede gerçekleşmemektedir. Gelişmekte olan ülkeler için ticari serbestleşme arayışında ticari engellerin kaldırılması, rant arama faaliyetlerine yol açabileceğinden ticari açıklığın ekonomik sonuçlarına ilave olarak, politik ve kurumsal yapılar üzerindeki etkisi de önemlidir. Bu çalışma, Türkiye ve seçilmiş MENA ülkelerinde 1996-2018 dönemi verileriyle Genişletilmiş Ortalama Grup (AMG) yöntemi kullanılarak dışa açıklığın yolsuzluk üzerindeki etkisini analiz etmektedir. Sonuçlar, ticari açıklığın yolsuzluğun kontrolünü azalttığını; buna karşılık ekonomik büyüme, hukukun üstünlüğü ve kamu harcamalarının ise yolsuzluğun kontrolünü artırdığını göstermektedir. Bunun yanında Dumitrescu-Hurlin (2012) nedensellik testi bulguları, değişkenler arasında farklı ilişkinin varlığını ortaya koymaktadır.
Globalization is a central concept that characterizes today’s economies. Globalization is extensive in scope, encompassing the cross-border movement of goods, capital, and individuals and thereby affecting almost all disciplines. The impacts of globalization are not limited to economics but extend to political, social, and cultural changes. During the period dominated by Keynesian economics, from World War II to the 1970s, the state’s role in the economy expanded and the view that demand-oriented government policies would increase welfare became widespread. After the 1970s, many countries around the world took steps toward radical changes in economics and politics. The idea that the welfare state, as identified in Keynesian economics, leads to inefficiency, wasted resources, and corruption in the public sector, started to take hold on political-economic grounds.
The new world order that began in the 1970s focuses on a structure that differs from previous periods, reducing the role of the state in the economy, increasing integration across countries, and removing economic and trade barriers. International organizations under the control of developed countries, such as the International Monetary Fund and the World Bank, have tried to persuade underdeveloped and developing nations to benefit from globalization by opening up their economies. The Washington Consensus, proposed by John Williamson (1990), is a manifesto that specifies the reforms developing countries should implement in order to adapt to globalization. The impact of integrating with international markets on individual countries is not only economic; it also affects corruption, which is closely related to political decision-making and corporate governance. The theoretical literature in this field focuses primarily on the impacts of corruption on trade openness. However, trade openness itself influences corruption through various mechanisms. Optimistic views argue that trade openness reduces corruption by reducing monopolistic rents and the motivation to seek bribes. In contrast, those who argue that trade openness increases corruption state that the marginal utility of bribery for customs officers increases with openness, the control mechanism of commercial activities weakens, and there is an increased need for funds due to politicians’ concerns about being re-elected that leads to a rise in rent-seeking activities.
Based on this framework, this study analyzes the impact of trade openness on corruption for a panel group consisting of Turkey and the MENA countries, Algeria, Bahrain, Egypt, Iran, Israel, Jordan, Kuwait, Lebanon, Malta, Morocco, Oman, Qatar, Saudi Arabia, and Tunisia, using data spanning the period from 1996 to 2018. The dependent variable is a control of corruption index, and the share of total exports and imports of a country’s Gross Domestic Product (GDP) is used as an indicator of trade openness. Other explanatory variables include a rule of law index, real GDP per capita, and public expenditures. In the first stage of the empirical analysis, the cross-section dependence test, homogeneity test, and unit root test are performed. The Augmented Mean Group (AMG) method developed by Eberhardt and Bond (2009) is used to reveal a long-term relationship between the variables. After determining this long-term relationship, Dumitrescu-Hurlin’s (2012) causality method is used to investigate the causality linkage between the variables. According to the AMG results, trade openness negatively affects the control of corruption in the panel countries. In terms of economic rhetoric, corruption increases with trade openness. In addition, the impact of other explanatory variables on corruption control is positive. Accordingly, we find that economic growth, the rule of law, and the increase in public expenditures reduce corruption by increasing the extent to which corruption is controlled.
The causality test performed after the parameter estimation reveals different findings. We show there are bidirectional causality linkages between control of corruption and economic growth, control of corruption and trade openness, trade openness and economic growth, the rule of law and economic growth, and public expenditures and the rule of law. In addition, one-way causality relationships are found from public expenditures to control of corruption, The causality test performed after the parameter estimation reveals different findings. We show there are bidirectional causality linkages between control of corruption and economic growth, control of corruption and trade openness, trade openness and economic growth, the rule of law and economic growth, and public expenditures and the rule of law. In addition, one-way causality relationships are found from public expenditures to control of corruption, economic growth, and trade openness, and from trade openness and to the rule of law. Our findings are consistent with the pessimistic view that states trade openness increases corruption. The results offer various suggestions for policymakers in MENA countries and Turkey. When pursuing integration with the global economy, policymakers should develop policies to strengthen the rule of law, increase accountability and transparency, ensure political stability, improve regulatory quality, and make the public sector more effective to reduce the negative impact of globalization on corruption within the country. These countries should also implement policies that will improve institutional quality when integrating into the global economy. Therefore, beyond quantitative growth, qualitative development of the public sector becomes more critical.