The International Economics of Corruption: International Trade as a Development Policy Mechanism to Reduce Corruption

Abstract

Public sector corruption is an issue of international concern that negatively effects both developed and developing countries. Corruption most negatively effects developing countries through the negative impact it has on these countries’ economies. Countries that experience the highest corruption also experience the lowest GDPs and economic development. The corruption experienced by developing nations affects developed countries by increasing the costs of commerce in these economies. The OECD’s criminal enforcement approach to corruption represents an important component of a comprehensive international policy against corruption but does not adequately address the issue on its own. The OECD’s Anti-Bribery Convention suffers from key limitations that undermine its potential effectiveness in reducing corruption. First, the Convention is unevenly enforced. A minority of the signatories represent a majority of the enforcement action. Also, the Convention does not address where corruption occurs (often in foreign developing nations) and its root causes. Relying on this type of approach does not address the issues that cause corruption in developing nations and may continue to allow it to fester. Therefore, complementary international policy is needed to effectively address the demand-side of corruption. The international community may effectively address demand-side corruption in developing countries by engaging corruption-prone countries more in international trade. Findings in this paper support the notion that countries that are the most economically developed experience less corruption. These countries are also the highest trading nations. The OECD nations have been partner to a disproportionately greater share of Regional Trade Agreements (RTAs) and Free Trade Agreements (FTAs) than developing countries. If the most developed nations of the international community create more RTAs and FTAs with developing nations, this has the potential to raise incomes and create corruption-reducing institutional change.