TY  - JOUR
AU  - Bai,Chong-En
AU  - Wei,Shang-Jin
TI  - Quality of Bureaucracy and Open-Economy Macro Policies
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7766
PY  - 2000
Y2  - June 2000
UR  - http://www.nber.org/papers/w7766
L1  - http://www.nber.org/papers/w7766.pdf
N1  - Author contact info:
Shang-Jin Wei
Graduate School of Business
Columbia University
Uris Hall 619
3022 Broadway
New York, NY 10027-6902
Tel: 212/854-9139
E-Mail: shangjin.wei@columbia.edu
AB  - Bureaucratic quality in terms of the level of corruption varies widely across countries, and is in general slow to evolve relative to the speed with which many economic polices can be implemented such as the imposition of capital controls.  In this paper, we study the possibility that quality of bureaucracy may be an important structural determinant of open-economy macro-policies, in particular, the imposition/removal of capital controls, and financial repression.  We first derive a model that delivers such a result.  Bureaucratic corruption translates into reduced ability by the government to collect tax revenue.  Even if capital control/financial repression is otherwise inefficient, as long as the government needs the revenue for public goods provision, it would have to rely more on capital control/financial repression.  For all countries for which we can obtain relevant data, we find that more corrupt countries are indeed more likely to impose capital controls, a pattern consistent with the model's prediction.  The result of this paper suggests that a premature removal of capital controls mandated by outside institutions could reduce rather than enhance economic efficiency.
ER  -