Economic integration and corruption

We study the link between corruption and economic integration. Integration is modeled by a common regulation for public procurement. We show that integration resolves a term of trade driven prisoner's dilemma and will always take place in the absence of corruption. Corruption may destroy the incentives for integration. If the propensities to corruption are too different, the more honest country, which benefits less from integration, will not be willing to join the union. This difference in corruption propensities can be offset by a difference in efficiency. We also show that integration has the positive effect of reducing corruption.