Level and quality of openness and corruption in the ECA countries

Abstract

Despite recent progress, corruption is frequently cited as an obstacle inhibiting business in the Europe and Central Asia (ECA) region, and there are considerable differences in corruption across the ECA countries. Regression analyses show that both the level and quality of openness significantly affected corruption in the ECA countries between 1996 and 2009. These findings are robust; they do not depend on the addition of a number of other relevant variables or the choice of estimator – OLS, robust or random-effects generalized least squares.

Keywords:

• openness
• quality of openness
• corruption
• ECA countries

JEL Classification:

• C21
• F14
• O12

Acknowledgement

We would like to thank Kevin Bengyak, Huseyin Cakal, Samin Gokcekus, Christopher Morrow, Edward Tower and anonymous referees for their helpful comments and suggestions.

Notes

¹ Bonaglia et al. (2001) clearly explain two channels through which economic openness reduces corruption: (1) the number and stringency of the rules and regulations regarding trade, and (2) increased competition. For details, see Krueger (1974), Gatti (1999), Levinsohn (1993), Ades and Di Tella (1999), Smith-Hillman (2007) and Lee and Azfar (2008).

² In order to avoid potential problems due to using Transparency International’s Corruption Perception Index as the dependent variable and as an ingredient in calculating the openness index, we used International Country Risk Guide (ICRG) corruption score in constructing the openness index.

³ Although we started with all of the 30 ECA countries (according to the World Bank classification), we ended up 26 countries either due to unavailability of corruption, income or other statistics. Moreover, our data set is unbalanced because for a number of countries corruption indicator was not available for various years.

⁴ To take into account the presence of outliers or influential observations, we utilized the robust regression command in Stata, rreg.

⁵ Fixed-effects models cannot be used to investigate time-invariant causes of the dependent variables. Because we had reason to believe that differences across ECA countries, in terms of time-invariant variables, that is, ELF and EU membership could have some influence on level of perceived corruption, we used random effects rather than fixed-effects model.

⁶ To decide between a random-effects regression and a simple OLS regression, to test the null hypothesis that variances across countries is zero, that is, no panel effect, we conducted the Breusch and Pagan Lagrangian multiplier test. We rejected the null hypotheses both for Equations 1 and 2.

Additional information

Funding

This study is a part of a research project OP Vzdelávanie ‘Increasing the quality of doctoral studies and support of the international research at the FNE, University of Economics in Bratislava’ [ITMS 26140230005], Activity 1.3. Realization of common research 3. Modern education for knowledge society. Project is co-financed by the European Union.