Corruption, institutional quality, and offshoring: How do they affect comparative advantage, inter‐country wage inequality, and economic growth?

Abstract

We analyze whether, due to the effects on corruption, institutional quality, and offshoring affect comparative advantage, income inequality between countries and economic growth. We start by developing a theoretical model of endogenous R&D growth for an integrated area with two representative countries that differ in the economic development level. Then, we estimate an econometric model with panel data, considering combinations of 14 different countries, between 2000 and 2017. We show that an improvement in offshoring increases the comparative advantage of developing-South countries and decreases the wage gap between developed-North and South countries. In turn, an improvement in institutional quality increases the comparative advantage of the North and widens the wage gap between countries.Whatever the improvement, there is always an increase in the world economic growth rate. Thus, all countries can improve their position in international trade, labor market, and economic growth through the conduction of policies that reduce corruption and, respectively, increase the quality of institutions and the attractiveness for the offshoring.

Corruption's effect on BRICS countries' economic growth: a panel data analysis

“…Similarly, development aid recipient countries are expected to improve good governance since accountability and control of corruption have become critical in the aid allocation decision (In'airat, 2014). Finally, considering that corruption is a global problem requiring a global solution (World Bank, 2021), Afonso and Longras (2022) advocate for implementing corruption-reducing policies across all countries. These authors conclusively reported that such policies could advance all countries' positions in international trade, labour markets and economic growth while simultaneously increasing institutions' quality and offshoring attractiveness.…”

“…Pioneered by Rose-Ackerman (1975), the empirical analysis of the growth-corruption nexus has resulted in mixed conclusions depending on estimation strategies and sample data distribution. Focussing on cross-country evidence, most studies emphasise corruption's negative impact on economic growth (Mauro, 1995;Mo, 2001;Pellegrini and Gerlagh, 2004;Meon and Sekkat, 2005;Omoteso and Mobolaji, 2014;Gr€ undler and Potrafke, 2019;Mohammed et al, 2022;Nguyen and Bui, 2022;Afonso and Longras, 2022). Several studies also endeavoured to identify the transmission channels through which corruption affects economic growth.…”