Governance, Corruption, and Trade in the Asia Pacific Region

This paper examines the impact of reducing corruption and improving transparency to lower trade costs in the Asia Pacific Economic Cooperation region. The authors find, based on a computable general equilibrium model, significant potential trade and welfare gains for Asia Pacific Economic Cooperation members, with increased transparency and lower levels of corruption. Results suggest that trade in the region would increase by 11 percent and global welfare would expand by $406 billion by raising transparency to the average in the region. Most of the increase in welfare would take place in member economies undertaking reform. Among the reformers, the gross domestic product of Vietnam, Thailand, Russia, and the Philippines would increase approximately 20 percent. The benefits to Malaysia and China would also be substantial with increased transparency and lower levels of corruption. 1 This work is aligned with the “Transparency and Competitiveness” project supported through a Trust Fund established by the Australian Department for Foreign Affairs and Trade and the Australian Agency for International Development (AUSAID). It is also part of the Multi-Donor Trust Fund for Trade and Development project on “Trade Costs and Facilitation” of the World Bank. Additional information is available at: http://econ.worldbank.org/projects/trade_costs/ 2 The authors are respectively Professor, Tokyo Denki University and Lead Economist, in the Development Research Group—Trade, the World Bank. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. We are grateful to Bernard Hoekman, Will Martin and participants at a trade seminar at the World Bank on June 24, 2008, as well as participants at the Roundtable on “Structural Reform and Policy Institutions: The Regional and International Agenda,” co-sponsored by Columbia University and The Australian National University, June 20, 2008 for helpful comments.