of Law and Finance Year IV, no. 1, 2017 The Central Bank Journal of Law and Finance is coordinated by the National Bank of Romania – Legal Department, Director Alexandru-Nicolae Păunescu, PhD Editor-in-chief: Surica Rosentuler 1. SCIENTIFIC BOARD Mugur ISĂRESCU Academician, Romanian Academy, Corresponding member of Real Academia de Ciencias Económicas y Financieras, Barcelona, Spain Moisă ALTĂR Professor, DoFIN, Academy of Economic Studies, Bucharest, Romania, Romanian-American University, Bucharest, Romania Lucian BERCEA Professor, West University of Timişoara, Romania Radu CATANĂ Professor, Babeş Bolyai University, Cluj, Romania James Ming CHEN Professor, Justin Smith Morrill Chair in Law, Michigan State University, USA Ionuţ DUMITRU Professor, DoFIN, Academy of Economic Studies, Bucharest, Romania Ovidiu FOLCUŢ Professor, Romanian-American University, Bucharest, Romania M. Peter van der HOEK Professor, Academy of Economic Studies, Bucharest, Romania, Erasmus University (EM), Rotterdam, Netherlands Iftekhar HASAN Professor, E. Gerald Corrigan Chair in International Business and Finance, Fordham University’s Schools of Business, New York, USA Dumitru MIRON Professor, Academy of Economic Studies, Bucharest, Romania Ion STANCU Professor, Academy of Economic Studies, Bucharest, Romania Brânduşa ŞTEFĂNESCU Professor Emeritus Paul WACHTEL Professor, Stern School of Business, New York University, USA 2. EDITORIAL BOARD Tudor CIUMARA PhD, Researcher, Centre of Financial and Monetary Research, Bucharest, Romania Adrian - Ionuţ PhD, Associate Professor, Academy of Economic Studies, CODIRLAŞU Bucharest, Romania Bogdan-Octavian PhD, Senior Lecturer, Academy of Economic Studies, COZMÂNCĂ Bucharest, Romania Adina CRISTE PhD, Researcher, Centre of Financial and Monetary Research, Bucharest, Romania Constantin MARIN PhD, Researcher, Centre of Financial and Monetary Research, Bucharest, Romania Beatrice POPESCU Adviser to the Deputy Governor of the National Bank of Romania Radu RIZOIU PhD, Lecturer, Faculty of Law, University of Bucharest, Romania iii Cover by Romeo Cȋrjan, PhD DISCLAIMER The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the National Bank of Romania, nor do they engage it in any way. © 2017 National Bank of Romania. All rights reserved. Published by the National Bank of Romania, 25 Lipscani Street, 030031 Bucharest | www.bnro.ro ISSN 2392 – 9723 ISSN-L 2392 – 9723 iv CONTENTS Oluwole Owoye The Analysis of Corruption and Economic Growth in African Countries 1 Roger Gladei, Patricia Handraman Republic of Moldova: First-Wave Reform of Security Interests Legal Framework 23 Ana-Maria Cazacu The External Competitiveness of the Romanian Economy 49 Andreea Oprea The Impact of MiFID II on the Liquidity of Fixed Income Instruments 79 Alexandru M. Tănase Two Currencies - Two Destinies: The Romanian Leu - The Moldovan Leu 105 Cristina Elena Moldovan Supervisory Colleges: Evolving Structures and Diverse Practices. Selected Issues. 135 The Central Bank Journal of Law and Finance is in dexed in the Academic OneFile database of Gale, a Cengage company. v AUTHOR GUIDELINES for CENTRAL BANK JOURNAL OF LAW AND FINANCE The future contributors of the Central Bank Journal of Law and Finance, published under the auspices of the National Bank of Romania, are requested to consider the guidelines below. DRAFTING GUIDELINES Manuscript Formatting. Prepare the manuscript in English, using Georgia 10 pt. for the body text and 9 pt. for footnotes and legends, 1.2 line spacing, A4 paper size and submit it as doc, docx or rtf. Do not use bold, underline or ALL CAPS. Use italics sparingly, for emphasis only. Do not use tabs or indents. Manuscript Structure. Structure the manuscript as follows: the manuscript title in capital letters, an abstract that should not exceed 100 words, keywords, JEL classification, main text, acknowledgements, appendices, references. Divide your manuscript into clearly defined and numbered sections. Tables, Graphics and Schemes. Provide numbered captions for all tables and figures. Citations. Use endnotes to cite sources. Citations should follow the format: author’s last name, author’s first name, full title of the cited paper, publisher, place of publication, year, cited page(s). References. Submit each manuscript with a full list of references. The list should be numbered, delimited by semicolons and each reference should follow the format: author’s last name, author’s first name, full title (do not use abbreviations), publisher, place of publication, year, cited page(s). SUBMISSION Submit your manuscript to the e-mail address: [email protected]. vi The Analysis of Corruption and Economic Growth in African Countries Oluwole Owoye* Abstract This paper uses simple theoretical models to show the effects of corruption on households' demand and consumption of goods and services, production and costs of private and public firms, government-produced goods and services, financial systems, and the aggregate economy in African countries. From a straightforward application of the theories of utility maximization, production and costs, government monopoly, and economic growth, we show that corruption: (a) reduces households' demand and consumption of goods and services, (b) increases the costs of production and decreases output, (c) reduces both savings and investment and (d) magnifies the extent of capital dilution at the steady-state per capita income in African countries. Most importantly, as capital decreases due to corruption, per-capita income dissipates in the long-run. Thus this paper provides a partial explanation as to why African countries are farther away from a sustainable economic growth path despite structural reform programs recommended by several international agencies such as the World Bank and the International Monetary Fund. Keywords: corruption, households, firms, governments, economic growth, Africa JEL Classification: C00, O40, 043, O55 * Professor of Economics, Department of Social Sciences/Economics, Western Connecticut State University, Danbury, CT 06810 USA. Email: [email protected], tel: 203-837-8456, fax: 203-837-3960 Central Bank Journal of Law and Finance, No. 1/2017 1 The Analysis of Corruption and Economic Growth in African Countries 1. INTRODUCTION This paper addresses a fundamental social problem of immense proportion and with serious economic growth implications for African countries. In these countries, the increasing rate of corruption is one of the most perplexing economic and social problems they have faced since their national independence. In many African countries, corruption in the public sector has left the treasury virtually empty whenever there has been a change of government, either from a military dictatorship to an elected democratic government or vice versa. The looting of the national treasury is easy because it is very difficult to distinguish between the treasury and the personal bank accounts of top level government officials. Some economists have argued that the revenues from corruption are likely to be invested in productive activities with forward and backward linkages which will enhance economic growth. On theoretical grounds, this maybe a valid argument if corruption revenues are ploughed into the economy because macroeconomic theory suggests that leakages from the income streams are injected into the economy. Unfortunately for African countries, the revenues from corruption are stashed away in foreign bank accounts or invested in the Stock Exchange of foreign countries where confiscation would be difficult. The international community is well aware of the fact that many African leaders, as well as leaders from other developing countries, are worth millions of dollars in foreign bank accounts which cannot be justified by their total annual income even if it were invested at the highest rates of return. In this paper, we define corruption in a broad sense to include bribery, embezzlement, abuse of office, and other forms of illegal activities that cause misallocation of society's scarce resources. The abuse of office is defined as a form of government (corporate) corruption which includes the sale of government (corporate) properties for personal gain. In African countries, corrupt behaviour can manifest itself in different forms such as the unlawful transfer or exchange of money, shredding of vital documents, padding private and government payrolls with “ghost” or “graveyard” workers, and vote or election rigging. In these countries, the destruction of government buildings by arson is a common practice whenever there are inquiries that might uncover illegal and corrupt activities. For example, there are several newspapers and television reports of fires in ministries and government- owned companies that have been blamed on corrupt officials trying to hide crimes.1 More importantly, corruption compromises the health and national security of African countries. For example, some of these countries are potential dumping grounds for batches of contaminated foods, hazardous nuclear wastes, and other harmful substances in exchange for paltry foreign exchange earnings. During the 1980s, top government officials of Sierra Leone and a group of Nigerians accepted bribes from foreign companies to dump nuclear waste in these countries. This is possible because safety standards are rarely enforced; and even when enforced, standards are easily compromised because bribes are offered. A very good example in the African context