The Impact of Corruption on the Trade Flows of Arab Countries

Abstract

Corruption plays a significant part in economic transactions in developing countries. Due to the fact that it has the capacity to either facilitate or obstruct trade, As a result, demonstrating the link between corruption and commerce is crucial. There is no unanimity in the literature about this link. This paper investigates the impact of corruption on the trade of Arab countries with their trading partners in the United States from 2000 to 2019. We estimate the gravitational equation using the Poisson pseudo-maximum likelihood technique combined with the High-Dimensional Fixed-Effects method (PPMLHDFE). Unlike classical methods, PPMLHDFE estimator provides unbiased results and is consistent with the structural gravity equation. We measure the level of corruption using the Corruption of Control Index (CCI). The findings demonstrate unequivocally that corruption encourages the flow of products into Arab countries. However, we did not find any effect on exports