Corruption and Productivity : Firm-level Evidence from the BEEPS Survey

Corruption and Productivity : Firm-level Evidence from the BEEPS Survey

Using enterprise data for the economies of Central and Eastern Europe and the CIS, this study examines the effects of corruption on productivity. Corruption is narrowly defined as the occurrence of informal payments to government officials to ease the day-to-day operation of firms. The effects of this "bribe tax" on productivity are compared to the consequences of red tape, which may be understood as imposing a "time tax" on firms. When testing effects in the full sample, only the bribe tax appears to have a negative impact on firm-level productivity, while the effect of the time tax is insignificant. At the same time, unlike similar studies using country-level data, firm level analysis allows a direct test of the "efficient grease" hypothesis by investigating whether corruption may increase productivity by helping reduce the time tax on firms. Results provide no evidence of a trade-off between the time and the bribe taxes, implying that bribing does not emerge as a second-best option to achieve higher productivity by helping circumvent cumbersome bureaucratic requirements. When controlling for EU membership the effects of the bribe tax are more harmful in non-EU countries. This suggests that the surrounding environment influences the way in which firm behaviour affects firm performance. In particular, in countries where corruption is more prevalent and the legal framework is weaker, bribery is more harmful for firm-level productivity.

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Bibliographic Details
Main Authors: De Rosa, Donato, Gooroochurn, Nishaal, Gorg, Holger
Language:English
Published: 2010-06-01
Subjects:ABUSES, ADVERSE EFFECTS, ASSETS, BRIBE, BRIBERY, BRIBES, BUREAUCRACY, BUSINESS CLIMATE, BUSINESS ENVIRONMENT, CETERIS PARIBUS, CIVIL LAW, COMPARATIVE ECONOMICS, COMPETITIVE ADVANTAGE, COMPETITIVE MARKETS, COMPETITIVENESS, COMPREHENSIVE STRATEGY, CORPORATE PERFORMANCE, CORRUPT, CORRUPT OFFICIALS, CORRUPT PRACTICES, CORRUPTION, CORRUPTION PERCEPTION, CORRUPTION PERCEPTION INDEX, CORRUPTION PERCEPTIONS, CORRUPTION PERCEPTIONS INDEX, COUNTRY DUMMIES, COUNTRY FIXED EFFECTS, COUNTRY RISK, CPI, CRONYISM, DEMOCRACY, DEVELOPED COUNTRIES, DEVELOPMENT ECONOMICS, ECONOMETRIC ANALYSIS, ECONOMIC ACTIVITY, ECONOMIC BEHAVIOR, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC HISTORY, ECONOMIC PERFORMANCE, ECONOMIC RESEARCH, ECONOMICS, EMPIRICAL EVIDENCE, EMPIRICAL STUDIES, ENVIRONMENTAL, ENVIRONMENTS, EQUILIBRIUM, EXCESS PROFITS, EXPENDITURES, EXPORTS, EXTERNALITIES, EXTORTION, FINANCIAL SECTOR, FINANCIAL SERVICES, FIRM GROWTH, FIRM PERFORMANCE, FIXED ASSETS, FOREIGN COMPETITION, FOREIGN DIRECT INVESTMENT, FOREIGN INVESTORS, FOREIGN OWNERS, FOREIGN OWNERSHIP, FREE PRESS, GDP, GDP PER CAPITA, GOVERNANCE INDICATORS, GOVERNMENT OFFICIALS, GOVERNMENT REGULATION, GOVERNMENT REGULATIONS, HUMAN CAPITAL, INCOME, INCOME GROUP, INCOME LEVELS, INCOMES, INDIVIDUAL FIRM, INDIVIDUAL FIRMS, INSTITUTIONAL ENVIRONMENT, INTERMEDIATE GOODS, INVESTIGATION, INVESTMENT DECISIONS, JUDICIARY, KICKBACKS, LAWS, LEGAL DISPUTES, LEGAL FRAMEWORK, LEGAL FRAMEWORKS, LEGAL SYSTEM, LOBBYING, MARKET ACCESS, MARKET ECONOMY, MARKET ENTRY, MARKET PLAYERS, MEASUREMENT OF CORRUPTION, MONOPOLY, MULTINATIONALS, NEPOTISM, OPPORTUNITY COST, OUTPUT, PARTICULAR COUNTRY, PATRONAGE, PER CAPITA INCOME, POLITICAL ECONOMY, POLITICAL REGIMES, POLITICAL STABILITY, POLITICIANS, POSITIVE EFFECTS, PREFERENTIAL, PREFERENTIAL TREATMENT, PRIVATE OWNERSHIP, PRODUCERS, PRODUCT MARKETS, PRODUCTION FUNCTION, PRODUCTION FUNCTIONS, PRODUCTIVITY, PROPERTY RIGHTS, PUBLIC OFFICIALS, RED TAPE, REGRESSION ANALYSIS, REGULATORS, REGULATORY ENVIRONMENT, REGULATORY REQUIREMENTS, REPUBLIC, REPUTATION, REPUTATIONS, RESOURCE ALLOCATION, RISK AVERSE, RISK AVERSION, RISK OF EXPROPRIATION, SANCTION, STATE CAPTURE, TAX, TAXATION, TECHNOLOGICAL CHANGE, TECHNOLOGICAL PROGRESS, TECHNOLOGY TRANSFER, THEORETICAL MODELS, TOTAL FACTOR PRODUCTIVITY, TRADE-OFF, TRANSACTION COSTS, TRANSITION ECONOMIES, TRANSPARENCY, WAGES, WEALTH, WEALTH CREATION, WORLD ECONOMY,
Online Access:http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110124085129
https://hdl.handle.net/10986/4000
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Summary:Using enterprise data for the economies of Central and Eastern Europe and the CIS, this study examines the effects of corruption on productivity. Corruption is narrowly defined as the occurrence of informal payments to government officials to ease the day-to-day operation of firms. The effects of this "bribe tax" on productivity are compared to the consequences of red tape, which may be understood as imposing a "time tax" on firms. When testing effects in the full sample, only the bribe tax appears to have a negative impact on firm-level productivity, while the effect of the time tax is insignificant. At the same time, unlike similar studies using country-level data, firm level analysis allows a direct test of the "efficient grease" hypothesis by investigating whether corruption may increase productivity by helping reduce the time tax on firms. Results provide no evidence of a trade-off between the time and the bribe taxes, implying that bribing does not emerge as a second-best option to achieve higher productivity by helping circumvent cumbersome bureaucratic requirements. When controlling for EU membership the effects of the bribe tax are more harmful in non-EU countries. This suggests that the surrounding environment influences the way in which firm behaviour affects firm performance. In particular, in countries where corruption is more prevalent and the legal framework is weaker, bribery is more harmful for firm-level productivity.

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