Abstract
Corruption is a form of abuse of ethical authority by public officials, which is divided into two parts: bribery and forced collection. The effect of corruption like bribes and illegal levies is widespread in the public sector. One interesting investigation is the effect of corruption on international trade. Corruption becomes a barrier in international trade, where corruption plays a role in the access of trade goods and services from within and abroad. Using the gravity model, the focus of this research was the effect of corruption on international trade by taking a case study of Indonesia’s bilateral trade with its nine largest export destination countries. Using panel data, analysis tools used in this research were common effect, fixed effect, random effect and poisson pseudo maximum likelihood (PPML). In this research, it was found that geographical distance variable in its fixed units caused the omitted variable so that the error term correlated with independent variables. In order to overcome the problem, poisson pseudo maximum likelihood method was used in performing regression gravity model with linear log form, so the omitted variable issue on the geographical distance can be eliminated. The results of this research concluded that corruption played a role in international trade through bureaucratic mechanisms of trade and investment licensing and the effect of corruption was more detrimental to exporters.Keywords: Gravity Model, Corruption, International Trade, Poisson Pseudo Maximum Likelihood (PPML).
Highlights
Corruption is an act that violates a country’s legal system and norms
Based on the research conducted on the effect of corruption on international trade, it can be concluded that: (1) Using gravity model, the coefficient of Indonesia’s corruption perception index has a positive relationship on Indonesia’s export value to 9 destination countries
Greater corruption perception index reflects that the country is cleaner from corruption
Summary
Corruption is an act that violates a country’s legal system and norms. Corruption perception in a country can expand and enter the bureaucratic regulation system in each country, such as bribery and rent-seeking resulting in additional costs to the business. Based on the above reasons, gravity model is used in this research to measure the effect of corruption on international trade This theory proves that the strength of international trade has a positive relationship with the country’s national income and has a negative relationship with distance or barriers between the capital to the two countries (Voicu & Horsewood, 2006). The combination of gravity model with CPI value will explain the factors affecting international trade and the role of corruption in it Based on this problem, this research focuses on the effect of corruption on international trade by taking a case study of Indonesia’s bilateral trade with the 9 largest export destination countries.
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