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Working hypotheses Nine hypotheses will be presented; each one is derived from either theoretical literature or historical analysis. Some arguments are given exogenously, such as the level of development or the level of democracy, since it is unlikely that any of these two are going to change significantly in the near future, while others relate directly to the regulatory environment of conducting business. Data sources for each variable used in the testing of the hypotheses are fully documented in the appendix B. Hypothesis 1: Corruption is lower in higher economically developed countries The economic linkage between the economic development and corruption suggested by the literature is undeniable. Corrupt deal exposure is much more probable in more economically developed countries. In addition to its clear impact on democracy, economic development improves the spread of education, literacy, and depersonalizes economical relationships — each of these ought to increase the likelihood that a misuse of public power will be detected and tackled. Therefore, the first hypothesis is that corruption will decline as the economic development improves. Note that the index of corruption is calculated with higher values pertaining to cleaner governments; hence, a strong positive relation is expected. Hypothesis 2: Stable democratic institutions and corruption are expected to be positively correlated Democracy is a complex phenomenon, involving not just a single attribute but a complementary set of characteristics including free and fair elections, the rule of law, respect for human and civil rights, active citizen participation in the political process. The common argument in favour of democracy connects democracy with citizens’ freedom, the availability of information on examples of corruption and the voice to protest against it. Moreover, there is a significant coincidence of free markets and democracies. Even though there are some cases of spread of corruption in fresh democracies, the consolidation of democratic institutions reduces corruption in the long run. Many researchers suggest that electoral competition, checks, and balances associated with consolidated democratic systems facilitate a public scrutiny that impedes politicians’ wants for private gains as they risk losing elections 115
and criminal prosecution. On the other hand, autocratic regimes lack this kind of incentives, which are specific to democratic accountability. The political rights index used in the estimation assigns less democratic countries with higher scores. Therefore a strong negative relation is expected in the empirical estimation. Hypothesis 3: Corruption is associated with increasing number of bureaucratic procedures This hypothesis is tested in four areas of economic activity: the number of procedures to deal with licenses, start up a business, enforce a contract, and to import a good. Each dimension may be somewhat different, but the general expectation is that businesses facing too many procedures will seek to avoid them by resorting to corruption. In general, it is expected that the more procedures there is, the more contacts between businesses and the bureaucracy, thus, the more incentives for bribery. Hence, a negative relationship is expected. Hypothesis 4: Corruption rises with increasing bureaucratic delays In a seminal study, Myrdal (1968:952-3) argued that corrupt officials purposely cause administrative delays in order to attract more bribes. A similar proposition is put forward by Rose-Ackerman (1978: 90), arguing that bureaucrats are monopolists who profit from increasing prices by deliberately creating scarcity in their services. The vast discretion that many politicians and bureaucrats enjoy over the creation, proliferation, and interpretation of such regulations gives rise to corruption. The hypothesis is tested in three areas of economic activity: the time necessary to deal with licenses, start up a business, and enforce a contract. Hence, a negative relationship is expected in the empirical investigation. Hypothesis 5: Higher cost of administrative payments may or may not lead to higher corruption The official costs of dealing with the bureaucracy/official administrative fees and payments are expected to have an ambiguous effect on corruption. On one hand, the businesses may simply want to escape these costs by resorting to bribes. This would mean that a negative sign is expected: higher official costs will lead to more corruption. On the other hand, the opposite effect may take place. This seems implausible, since common sense logic would argue for the opposite relationship. However, businesses prefer predictable official payments to 116
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In collaboration with: F E M I S E
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Table of contents INTRODUCTION AND
Page 5 and 6:
Introduction and summary In the pro
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that of the NMS, we would observe a
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accession to the EU. Instead, a num
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trade area (FTA). The Agadir Agreem
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liberalization has taken five years
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signed Europe Agreements, EFTA and
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used as industry organization varia
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The main goal of the project was to
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Chapter 1: Assessing trade liberali
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Agricultural Policy (CAP). Further
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Agreements concluded with the MPCs.
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n lnTijt = ∑ k= 1 β RTAijt + α1
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Preferential trade liberalization i
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the EU enlargement, the EFTA lost t
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The most important of these was the
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The Definitions of the Variables an
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Estimates for the whole CEE sample
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agreements is, however, mixed. Whil
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The OLS estimates suggest that both
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Czech Republic Estonia Hungary Lith
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Czech Slovak Republic Estonia Hunga
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products. The provisions of the Eur
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foreseen to take effect in 2005. Ho
Page 51 and 52:
Similar to the AMU, the ACC was for
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Unfortunately, the data on capital
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Table 2. The estimates for bilatera
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obust, while the dummy variable for
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Yi (partner) 0.944 1.009 2.267 1.96
Page 61 and 62:
Page 63 and 64:
Page 65 and 66: Agreements on the third countries a
Page 67 and 68: Chapter 2: Grossman-Helpman Model I
Page 69 and 70: N function (U ), given by: + ( ) u
Page 71 and 72: ti 1+ ti xi Ii −α i mi = ⋅ ,
Page 73 and 74: Probably the most extensive list of
Page 75 and 76: eginning of 1990. But the tariff st
Page 77 and 78: The non-preferential (MFN, conventi
Page 79 and 80: have important impact on political
Page 81 and 82: xi where ti is the tariff, ei is th
Page 83 and 84: We can recover the structural param
Page 85 and 86: Appendix Table 2 Estimation results
Page 87 and 88: Table 4 Estimation results using mo
Page 89 and 90: Testing Grossman-Helpman model for
Page 91 and 92: practice most importers do not pay
Page 93 and 94: countries were traditionally subjec
Page 95 and 96: point to notify the US government o
Page 97 and 98: and between 157% and 247% in 2004.
Page 99 and 100: policy reforms. On the other hand i
Page 101 and 102: Table 1 Estimation results for Isra
Page 103 and 104: 1995 0.00202 [2.04]** -0.00199 [2.0
Page 105 and 106: extended to disaggregation of burea
Page 107 and 108: The Importance of Corruption A subs
Page 109 and 110: transition countries. Sekkat and Ve
Page 111 and 112: society. In addition, they show tha
Page 113 and 114: Johnson, Kaufmann, McMillan, and Wo
Page 115: corruption. For example, upon grant
Page 119 and 120: estimation are likely to be influen
Page 121 and 122: levels have been used to derive fur
Page 123 and 124: Union. In fact, the level of regula
Page 125 and 126: Table 2 List of the Commonly Raised
Page 127 and 128: Table 6 Predicted improvement (show
Page 129 and 130: SB_PR all procedures required to re
Page 131 and 132: AFGHANISTAN, ALBANIA, ALGERIA, ANGO
Page 133 and 134: Brunetti, Aymo; Kisunko, Gregory an
Page 135 and 136: Hines, J.R. (1995). Forbidden Payme
Page 137 and 138: PellegriniI, Lorenzo and Gerlagh, R
Page 139: World Bank (2005). Doing Business i
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