Corruption and Doing Business in Emerging Markets

Abstract

Corruption is a serious international problem with many damaging effects particularly in emerging market countries. We investigated to what degree overregulation and inadequate legal institutions contributed to corruption of small and medium-sized enterprises (SME) in emerging markets. Unlike other studies, we used data from the World Bank's Doing Business annual series which provides indicators of the regulatory and legal environments facing SME. We had three major research questions. (1) Which government obstacles to conducting business in the form of overregulation and inadequate legal institutions contribute most to corruption? (2) Which are more closely linked to corruption, excessive regulations or weak legal institutions? (3) Which of the components, from which the World Bank's indicators are derived, have the largest impact on corruption? We regressed Transparency International's Corruption Perception Index on the nine World Bank indicators and five control variables for 51 emerging market countries from 2007 to 2015. This study concludes that all five regulation indicators, but only one of four legal indicators, contributed to corruption.While past studies have linked regulation and corruption, our contribution was identifying specifically which of the World Bank's measures of the regulatory and legal environment cause corruption. In addition, our results also corroborate those of previous studies regarding our five control variables. Policy wise the World Bank has long advocated reducing regulations to improve SME operating efficiency. Our results further support such a policy because of its important additional benefit of reducing corruption and its many toxic effects. Contribution/ Originality:This study contributes to the existing literature by investigating to what degree overregulation and inadequate legal institutions contributed to corruption of small and medium-sized enterprises (SME) in emerging markets. INTRODUCTIONPublic sector corruption is a serious global problem. This study employs the Corruption Perceptions Index (CPI) that was developed by Transparency International, a non-governmental organization established and headquartered in Berlin in 1993. As Transparency International (TI) (2011) points out, corruption by its very nature is hidden and relying solely upon actual publicized cases of corruption could greatly understate the degree of corruption. Moreover, countries with the most aggressive and effective anti-corruption policing might mistakenly be perceived as the most corrupt. Consequently, relies upon perceptions data gathered by surveys and expert opinions which it has found were highly correlated with more evidence-based measures.

The doing business ranking and the design of public policies: the effect of regional dynamics

“…Additionally, Jerbashian and Kochanova (2016) sought to relate good business environments and the use of information and communication technologies while Handoyo (2017) sought to establish a relationship between values obtained by the DB measure and good public management behaviours. Finally, Lash and Batavia (2019) sought to establish the relationship between economic development (measured by the DB ranking) and corruption.…”

Panel Analysis of the Relationship Between Main Socio-Economic Factors and New Business Density

“…One of these studies asserts that corruption damages small and medium enterprises causing overregulation by the government in emerging countries (A. Lash & Batavia, 2019). The research uses regression analysis and examines several regulatory, legal, and macroeconomic indicators.…”

Prevention Village Fund Fraud in Indonesia: Moral Sensitivity as a Moderating Variable

“…Weak supervision has even become an outlet for embezzlement of village funds. To prevent corruption, vigilance must be increased (Lash and Batavia 2019). The strategy to prevent fraud in village financial management is that the village government needs to build an internal control system.…”