Corruption and Export Diversification: Is there a relationship?

Abstract: Does corruption have an impact on export diversification? Despite a growing interest from the international community regarding the detrimental effects of corruption, the consequences it may have for export diversification remain largely unexplored. The purpose of this thesis is to investigate if there is a relationship between the two and, if so, to determine if certain groups of countries have relatively more to gain from combatting corruption. I conduct my empirical investigation using panel data covering the period 2002-2012 for 157 economies at different levels of development. The baseline regression is estimated with the Poisson-pseudo-maximum-likelihood estimator and several robustness controls using alternative measures of diversification and other estimators are performed. My results imply that corruption has a significant and negative impact on export diversification. Moreover, my findings indicate that the magnitude of the effect differs depending on the exporter’s level of income and that corruption may be especially detrimental in sub-Saharan Africa. However, these results are less robust. Finally, I also find empirical evidence supporting a non-linear relationship between corruption and diversification.