Corruption and Imports – is China Different?

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: This Bachelor's Thesis investigates whether China’s corruption effects on trade differ from the rest of the world’s. The question is raised by the seemingly positive correlation between corruption and imports – in direct contradiction to previous research, concluding the relationship to be negative. Two Gravity Models are evaluated using Panel EGLS (Cross-section random effects) regressions on data from the year 2003, one of which includes the possibility for non-linear effects. The empirical study includes 48 countries and 6084 bilateral observations. The results establish, in the investigated sample, that China’s corruption effects on imports differ from those of the rest of the world, and that non-linear effects in corruption exist. The non-linearity is probably a so-called ”evasion effect”. It is suggested that China’s anomalous corruption effects are explained by a high level of predictability within the corruption, its size of bureaucracy and the phenomenon Guanxi.

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