Does corruption impede international trade? New evidence from the EU and the MENA countries

Abstract

This paper uses a gravity trade model to examine the effect of corruption on bilateral trade for a sample of 37 countries representing two regions: the Middle East and North Africa and the European Union during the period from 2002 to 2012. The study provides evidence that corruption negatively influences trade flows and that control of corruption improves trade potentialities. Also, subsamples estimations report robust support for this result but with more negative impact of corruption on regional trade for MENA countries. More traditional results suggest a positive effect of openness on the volume of trade, reflecting the need for regional integration. The empirical results provide evidence that, contrary to per capita GDP, GDP positively and significantly affects trade flows. Moreover, the study shows that countries may increase trade flows despite having different languages. However, distance and contiguity negatively impact trade flows. The nominal effective exchange rate as a price competitiveness variable positively and significantly influences trade flows. 2015, Statistical Economic and Social Research and. All rights reserved.