Structural Effects of Corruption and Anticorruption in Visegrad Countries: Trade Channel Michal Paulus 7.5. AAEM

Motivation Corruption and export Hypothesis ◦ Similar institutional level shape the trade Empirics ◦ V4 countries x core EU Current state: in progress

Outline Motivation and Literature ◦ Corruption and FDI ◦ Corruption and Exports ◦ Hypotheses ◦ Expected contribution Policy Relevance Methodology ◦ Cluster analysis ◦ Gravity model ◦ Expected results Appendix: results of cluster analysis

Motivation and Literature Corruption and Development Effects on GDP: prevailing negative effects ◦ E.g. Davoodi and Tanzi (1997) More relevant: effects on sustainable growth ◦ GDP ignores many aspects ◦ Aidt (2009 and 2011)

Motivation and Literature Corruption and FDI Negative effects ◦ Busse and Hefeker (2007) Positive effects ◦ Egger and Winner (2005) Results not conclusive

Motivation and Literature Corruption and Exports Negative effects ◦ Horsewood and Voicu (2012) Partial positive effects ◦ De Jong and Bogmans (2011) ◦ Dutt and Traca (2010).

Motivation and Literature Exports: general explanatory theory missing FDI: Brada, Drabek and Perez (2012) ◦ “corruption matching” or “middle-man” hypothesis Research follows the work of Brada, Drabek and Perez (2012)

Motivation and Literature Hypotheses H1: Countries tend to trade with the partners of similar corruption level. ◦ “Corruption matching” H2: Middle corrupt countries tend to have large trade with low and high corrupt countries. ◦ “middle-man hypothesis”

Motivation and Literature Expected contribution Empirics and policy Structural differences btw. core EU and V4 countries ◦ Potential conflicts between EU members Identification sensitivity of various sectors to corruption reduction Theoretical Establishing of “corruption matching” and “middle-men” hypotheses in export sphere and their partial tests (limited to EU level) Base for further tests of more general relevance

Policy relevance Opposition x anticorruption laws Winners x losers ◦ International level  EU integration and potential conflicts ◦ National level Solution ◦ Compensation payments Research identifies position of V4 and core EU countries

Methodology 2 steps ◦ Corruption clusters (done) ◦ Micro-founded Gravity model (pre- estimation)  Clusters included in the RHS Data ◦ Exports: V4 core EU (BE, DE, FR, IT, LU, NL) ◦ Explanatory variables: app. 130 countries ◦ Time period:

Methodology Corruption clusters 134 countries Index from Heritage Foundation (COR= CPI*10) Time Method: average linkage clustering Published in Physica A (ISSN: ) ◦ See Paulus and Kristoufek (2015) for further details Results in Appendix of ppt

Methodology

Methodology Other planned extensions Dependent variable Exports on sectoral level Value-added sectors Independent variable Cultural distance measures (CEPII) Various corruption measures ◦ CCI (WB), EFWI (CATO), BPI (IT), ICRG

Methodology Expected results Structural differences in role of corruption in exports: V4 x core EU Identification of different “corruption sensitivity” of key sectors Revelation of potential conflicts btw V4 and core EU

Appendix 4 clusters ClusterAv. corr. Av. GDP (p.c. current USD) ratio richest/poorest

Cluster #1 AustraliaAustriaBelgiumCanadaChile DenmarkFinlandFranceGermanyHong Kong IrelandJapanLuxembourgNetherlandsNew Zealand NorwaySingaporeSwedenSwitzerlandUnited Arab Emirates United KingdomUSA Cluster #2 BahamasBahrainBarbadosBotswanaCyprus EstoniaIsraelKuwaitMaltaOman PortugalSloveniaSpainTaiwanUruguay Cluster #3 AlbaniaAzerbaijanBangladeshBelarusBolivia BrazilBulgariaBurkina FasoBurmaCameroon ChinaColombiaCuba Dominican RepublicEcuador EthiopiaFijiGeorgiaGuineaGuyana HaitiHondurasIndiaIndonesiaIran Ivory CoastKenyaLaosLebanonLesotho LibyaMadagascarMalawiMaliMauritania MoldovaMozambiqueNepalNicaraguaNiger NigeriaNorth KoreaPakistanParaguayPeru PhilippinesRepublic of KongoRomaniaRussiaSuriname SwazilandSyriaTanzaniaTurkeyUganda UkraineVenezuelaVietnamYemenZimbabwe Cluster #4 AlgeriaArgentinaArmeniaBelizeBenin Cape VerdeCosta RicaCroatiaCzech RepublicEgypt El SalvadorGabonGhanaGreeceGuatemala HungaryItalyJamaicaJordanLatvia LithuaniaMalaysiaMexicoMongoliaMorocco PanamaPolandSaudi ArabiaSenegalSlovakia South AfricaSouth KoreaSri LankaThailandTrinidad and Tobago TunisiaZambia

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