This paper offers a new interpretation of the connection between openness and good governance. Assuming that corruption and bad governance drive out international trade and investment more than domestic trade and investment, a naturally more open economy’ as determined by its size and geography would devote more resources to building good institutions and would display lower corruption in equilibrium. In data, naturally more open economies’ do exhibit less corruption even after taking into account their levels of development. Residual openness’ which potentially includes trade policies is found not to be important once natural openness’ is accounted for. Moreover, naturally more open economies’ also tend to pay better civil servant salaries relative to their private sector alternatives indicative of the marginal benefit of good governance in a society’s revealed preference. These patterns are consistent with the conceptual model.
The Chinese leadership has promised for years that reform was around the bend and then you see things like President Xi’s speech where he emphasized the central role of the party... Members of the business community see the Trump administration as an opportunity for the U.S. to rattle the cage in Beijing.