Impact of Corruption on Firm‐level Export Decisions

Abstract

This article examines the impact of corruption on the self‐selection of firms into domestic and export markets. A heterogeneous firm model predicts that corruption decreases the probability that a firm only sells domestically, increases the probability that a firm exports indirectly through an intermediary, and decreases the probability that a firm exports directly. The propositions of the model are tested using a comprehensive dataset of over 23,000 firms in 80 developing countries. The results confirm both the self‐selection of firms according to their productivity and the anticipated impact of corruption. This indicates that in developing countries where corruption is especially severe, intermediaries provide a crucial link to global markets. (JEL F1, O1)

The export performance of emerging economy firms: The influence of firm capabilities and institutional environments

“…The cost of coping with excessive and arbitrary corruption in the home market may encourage EEFs to seek out for other corruption-free markets (Lee, Yin, Lee, Weng & Peng, 2015). Consequently, EEFs that are successful in their home markets may choose exports as a preferred alternative to doing business at home (Olney, 2016).…”

Does Corruption Attenuate the Effect of Red Tape on Exports?

“…Their findings suggest that the adverse effect of inadequate institutions is stronger than the adverse effect of higher tariffs. More recently, Olney () finds that corruption raises the probability of a firm exporting indirectly through an intermediary and lowers the probability of a firm exporting directly.…”

Import Uncertainty and Export Dynamics

“…However, Kaufmann and Wei (1999) show that firms with the ability to pay more bribes to corruption-prone officials are precisely the ones that suffer more from "bureaucratic harassment" and red tape. In addition to influencing border clearance times, rent-seeking has a direct bearing on firms' export decision, as shown by Olney (2015) who finds that corruption reduces the likelihood that a firm exports directly while raising the probability of resorting to intermediaries to access foreign markets. More generally, the literature has emphasized the trade-effects of institutional quality (see for example Levchenko, 2007 andNunn, 2007).…”