Corruption and trade protection: evidence from panel data

This paper provides new estimates of the effects of corruption and poor institutions on trade protection. It exploits data on several measures of trade protection including import duty, international trade taxes, and the trade-GDP ratio. The paper complements the literature on the relationship between corruption and trade reform. It deviates from the previous literature in several ways. First, unobserved heterogeneity among countries have been controlled with properly specified fixed effects exploiting the time dimension present in the dataset. Secondly, instead of using tariff and non-tariff barriers, more general measures of trade protection have been used. The issue of endogeneity of corruption with respect to trade policy has been addressed using proper instruments for corruption used in previous studies. Moreover, two separate institutional measures have been used in the same regression to estimate their comparative impacts on trade policy. In general, we find that corruption and lack of contract enforcement have strong impacts to increase trade protection and negative effects on trade openness.