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CORRUPTION AND THE EFFICIENCY OF CAPITAL INVESTMENT IN DEVELOPING COUNTRIES
Author(s) -
O'Toole Conor M.,
Tarp Finn
Publication year - 2014
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/jid.2997
Subject(s) - endogeneity , economics , language change , investment (military) , developing country , public capital , capital (architecture) , monetary economics , return of capital , payment , unit (ring theory) , return on investment , business , finance , public investment , microeconomics , investment performance , economic growth , production (economics) , econometrics , art , mathematics , law , history , literature , archaeology , political science , mathematics education , politics , fiscal policy
This paper tests the effect of corruption on the efficiency of capital investment. Using firm‐level data from the World Bank Enterprise Surveys, covering 90 developing and transition economies, we consider whether the cost of informal bribe payments distorts the efficient allocation of capital by reducing the marginal return per unit investment. Controlling for censoring and endogeneity, we find that bribery decreases investment efficiency. The negative effect is strongest for domestic small‐sized and medium‐sized enterprises. We conclude that reducing the level and incidence of bribery by public officials would facilitate a more efficient allocation of capital. © 2014 The Authors. Journal of International Development published by John Wiley & Sons Ltd.