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. Based on a computable general equilibrium (CGE) model, The authors find 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 US dollar 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.

The study builds on the existing understanding of the impact of improvement in transparency in APEC in a number of ways such as:

• it estimates the effects of transparency improvements in APEC on various important economic variables, such as welfare and production in both macroeconomic and sector terms, in addition to trade
  
• it provides a way to revisit results on potential gains found with the gravity model estimates in earlier work. It explicitly demonstrates the transmission mechanism of transparency improvement in the trade policy throughout the APEC member economies at the sector level
  
• the model deployed in this analysis covers the entire world and is not limited to the APEC economies
  
• the model allows for observation of the impacts of bilateral trade flows between APEC member and non-member economies, placing a focus on the issue of trade diversion or creation under differing scenarios