Research on the Impact of Corruption on a Country's Trade Flows — Based on the Extended Trade Gravity Model

Abstract

According to Transparency International, the level of corruption in Indonesia has been high. Based on the traditional gravity model, this paper introduces CPI and its secondary items as explanatory variables, and constructs a balanced panel data to explore the impact of corruption on the import in Indonesia. GMM estimates show that the corruption in Indonesia has an inverted U-shaped relationship with its foreign imports, and the corruption of Indonesia and its trading partners will lead to the growth of bilateral trade flows in the short term, but that will not achieve the sustained and healthy development of Indonesia’s trade. In order to promote the prosperity and development of China’s external trade, China should on the basis of its actual situation to propel the reform of the legal system and the construction of anti-corruption, clarify the powers and responsibilities of its governments, and standardize foreign trade procedures.