The OECD Anti-Bribery Convention: Changing the currents of trade

This paper examines how criminalizing the act of bribing a foreign public official affects international trade flows using a watershed global anti-corruption initiative — the 1997 OECD Anti-Bribery Convention. I exploit variation in the timing of implementation by exporting countries and in the level of corruption of importing countries to quantify the Convention's effects on bilateral exports. I use a large panel of country pairs to control for confounding global and national trends and shocks. I find that, on average, the Convention caused a reduction in exports from signatory countries to high corruption importers relative to low corruption importers. In particular, we observe a 5.7% relative decline in bilateral exports to importers that lie one standard deviation lower on the Worldwide Governance Indicators corruption index. This suggests that by creating large penalties for foreign bribery, the Convention indirectly increased transaction costs between signatory countries and high corruption importers. The Convention may have induced OECD firms to divert their exports to less corrupt countries; while non-OECD firms not bound by the Convention may have increased their exports to corrupt countries. I also find evidence that the Convention's effects differed across product categories.