WASHINGTON -- The fallout from the Enron and WorldCom scandals will cost the U.S. economy an estimated $37 billion to $42 billion this year, according to a study released.

The Brookings institution study says much of the losses will come from stock declines that reduce the so-called "wealth effect" and end up impacting gross domestic product, AFP reported.

The study assumes that the stock market does not recover from its July 19 level this year or drop substantially below it.

"Declines in the value of stocks can adversely affect the economy in at least two ways," according to the report.

"One is through the so-called 'wealth effect' on consumption. As consumers feel poorer, they are likely to spend less. The second channel is through the impact of falling stock prices on the 'equity premium' and thus on the cost of capital. Other things equal, a lower stock market especially one that is associated with more volatility -- should drive up the cost of equity capital, and thus diminish investment." Additionally, they said, investment "can be dampened to the extent firms expect lower consumption and more uncertainty, both of which can and are likely to be associated with a drop in stock prices."

The study examined the precipitous declines in the stock market since March, and concluded that much of the drop could be attributed to corporate malfeasance and scandals.

"In the absence of other obvious causes of stock market decline -- such as oil embargoes or the threat of an interest rate increase -- we believe a conservative assumption is that at least half of the drop in the stock market's value since march can be attributed to the Enron crisis, and that roughly 80 percent of the drop in the markets value since June 2002 can be attributed to WorldCom and subsequent scandals," the authors wrote. "With these assumptions ... we attribute a 17.5 percent loss in stock market wealth to the corporate scandals."

Study authors Carol Graham, Robert Litan and Sandip Sukhtankar said the scandals have hurt the U.S. economy in other ways, including impacts of unemployment, inflation, and foreign investment in the United States.

"For example, because the crisis has almost certainly discouraged foreign investment into the United States, the result has been a decline in the value of the dollar," they wrote. "Between March 19 and July 19, the trade-weighted value of the dollar fell by 5.2 percent."

These scandals, by hurting confident in the U.S. system, could have a broader spillover effect in other companies, say the authors. "The United States, in particular, has for the most part served as a model of an efficient and effective market economy. Until recently, U.S. accounting and other corporate management standards served as a 'gold standard' for many developing economies, and our stock market as the 'best of breed' example of a developed equity market."

But now, they noted, "there is a more general public questioning of the market, of free trade, and of the wide-scale privatization of pension funds that many countries have undertaken," which could hurt U.S. efforts to open many economies.