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Does corruption boost or harm firms’ performance in developing and emerging economies? A firm‐level study
Author(s) -
Martins Lurdes,
Cerdeira Jorge,
Teixeira Aurora
Publication year - 2020
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12966
Subject(s) - language change , harm , latin americans , emerging markets , proxy (statistics) , economics , competition (biology) , sample (material) , instrumental variable , developing country , development economics , business , monetary economics , macroeconomics , economic growth , political science , art , ecology , chemistry , literature , chromatography , machine learning , biology , computer science , law , econometrics
In the last decade, a growing number of studies have addressed the ongoing debate about whether corruption “sands” or “greases” the wheels of business at the firm level. This study revisits this debate and proposes a comprehensive theoretical framework to test whether corruption harms or boosts firm performance, as well as the extent to which this relationship is mediated by the countries’ institutional settings, the size and strategic behaviour of the firms, and market competition. Based on a sample of 21,250 firms located in 117 emerging and developing countries, and resorting to instrumental variable (IV) estimations, three main results were found: (a) regardless of the proxy used for corruption and firm performance, the former clearly harms the latter; (b) corruption “greases the wheels” of business for African firms but it “sands the wheels” for firms in Latin America, the Caribbean, Eastern Europe, Central Asia, and Southern Asia; and (c) the negative impact of corruption on performance is mitigated for larger and exporting firms.