| Summary: | 博士 === 中國文化大學 === 經濟學研究所 === 97 === Abstract
In the last decade, the countries in the emerging market economies (especially the Asia countries) demonstrate the combination of rapid growth and serious corruption, it brings cruel cost and effect upon economic development of a country. The issue of corruption has been a matter of hot debate among academics and policy makers after the Asian Crisis. This research will attempt to examine the relationship between the corruption and financial crisis in an open economy and the right response to the financial crisis by the authorities adopted.
In this paper we apply a small open economy model into the study on the issue of corruption and financial crisis. The conclusion obtained in this research includes:
1.We indicate that the bribery of corruption in an open economy will lead to lots of the change of output on the firm sector rather than a none-bribery economy.
2.If people will anticipate that expected output is high in corruption economy, in this situation, it will find that the equilibrium in corruption economy leads to the ‘good” case, with high output and an exchange rate appreciation.
3.If people will anticipate that expected output is low in corruption economy, it will show that the equilibrium in corruption economy leads to the ‘bad” case, with low output and an exchange rate depreciation. This case occurs, that is, the corruption in economy will lead easily to a financial crisis.
4.Suppose that the economy is hit by an unexpected shock, if the unexpected shock is negative it may easily lead to a financial crisis in corruption economy rather than none-corruption economy. On the other hand, if the unexpected shock is positive, corruption will increase the output level and make the currency appreciation, that is, a situation that the crisis in corruption economy may easily lead to a ‘normal’ economic situation rather than none-corruption economy.
5.The implementation of chasing corruption has an ambiguous effect on firms since it makes more difficult to borrow and may decrease the foreign currency debt burden. In a word, chasing corruption mechanisms will lead to the increase of output after crisis, that is, chasing corruption is beneficial for economic development. Moreover, if the economy is prosperous chasing corruption is harmful for economic growth.
6.A standard recommendation (the monetary authority) is through a decrease in money supply after crisis, in which case monetary tightening will have an overall positive impact on equilibrium output. That’s to say, monetary tightening might eliminate the financial crisis and be the right policy to follow.
7.We show that it is somewhat ambiguous effect on improvement of financial crisis by strengthening the financial supervision by policy authority in the open economy.
8.We also indicate that capital control by policy authority might eliminate the financial crisis and lead to an appreciation and to a subsequent increase in output in the good equilibrium.
In conclusion, the results show that corruption is a double edged sword, that is, the corruption has an ambiguous effect in the open economy. If the economy is prosperous, the corruption may grease the economic system and infuse some motive power into the economic activities during the processes of growth; nevertheless, if the economy is recession, the corruption may turn to be an obstacle to the growth of economy, furthermore, to easily lead to a financial crisis.
Keywords: financial crisis, corruption, foreign currency debt, financial supervision, capital control.
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