The efficiency of the institutions and the level of their effectiveness in trading among the countries are pretty new subjects that have been considered in recent studies. Many researchers believe that the corruption would cause a reduction in trading among the countries. On the other hand some others assume corruption can help to facilitate the transactions process. The main purpose of this paper is to study the effect of corruption on bilateral trade of selected countries in the Middle East between 2002 and 2008 by using gravity model and Panel Data method. We have used Corruption Perception Index in addition to Control of Corruption index as two proxies for studying the effects of corruption on the trade. Based on our results, as one percent reduction in Corruption Perceptions Index would lead to 3.53 percent increase in export in the exporting country. Furthermore one percent reduction of that in a country which imports the goods would induce 2.27 percent increase in trade.
JEL Classification Codes: F10, C23