Is Corruption Efficiency-Enhancing? A Case Study of Nine Central and Eastern European Countries

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may CompNet AbstractWe investigate the role of corruption in the business environment in explaining the efficiency of withinsector production factor allocation across firms in nine Central and Eastern European countries in the period [2003][2004][2005][2006][2007][2008][2009][2010][2011][2012]. Using a conditional convergence model, we find evidence of a positive relationship between corruption growth and both labour and capital misallocation dynamics, once country framework conditions are controlled for: the link between corruption and input misallocation dynamics is larger the smaller the country, the lower the degree of political stability and of civil liberties, and the weaker the quality of its regulations. As input misallocation is one of the determinants of productivity growth, we further show that the relationship between changes in corruption and TFP growth is indeed negative. Our results hold when we tackle a possible omitted variable bias by instrumenting corruption with two instrumental variables (the percentage of women in Parliament and freedom of the press).Keywords: bribes, capital misallocation, labour misallocation, total factor productivity JEL codes: D24, D73, O47ECB Working Paper 1950, August 2016 1 Non-technical summaryIn this paper we investigate how changes in corruption in the business environment may affect total factor productivity (TFP) growth by influencing the efficiency of the allocation of both capital and labour across firms in nine Central and Eastern European (CEE) countries in the period 2003-2012.The macroeconomic impact of corruption is well documented in the literature. Empirical studies show mixed results, supporting both the view that (i) corruption has the potential to foster economic development in that it constitutes the necessary "grease" to lubricate the stiff wheels of rigid government administration and legal framework, as well as the alternative view that (ii) the rent-seeking behaviour of corrupt officials might reduce economic performance, as promoted by the "sand-the-wheels" advocates.There is also a vast, yet inconclusive, literature on the possible impact of corruption on TFP via the input allocation channel. While some authors argue that corruption may promote allocative efficiency since only the most efficient and profitable firms can afford to pay bribes to obtain government services, others point out that corruption might promote sub-optimal choices with regard ...

Guatemala: Selected Issues Paper

“…Early evidence about the negative impact of corruption on economic growth based on a cross-country empirical analysis is presented in Mauro (1995). Similar results are obtained by Wei (1999), Méon and Sekkat (2005), Gamberoni et al (2016). For excellent reviews of the literature, see Svensson (2005), , Ugur and Dasgupta (2011), and IMF (2016).…”

Ukraine: Selected Issues

“…4 Early evidence about the negative impact of corruption on economic growth based on a cross-country empirical analysis is presented in Mauro (1995). Similar results are obtained by Wei (1999), Méon and Sekkat (2005), Gamberoni et al (2016). For excellent reviews of the literature, see Svensson (2005), Campos et al (2010), Ugur andDasgupta (2011), andIMF (2016).…”

Capital and Labour (Mis)Allocation in the Euro Area: Some Stylized Facts and Determinants

“…In Annex D we show the (again quite low) correlations between changes in labour and capital misallocation by sector, as well as reporting input misallocation dynamics across 2-digit industries within the heterogeneous manufacturing sector. Gamberoni et al (2016) have found that for a sample of Central and Eastern European countries there is evidence of convergence in both capital and labour misallocation or of their inverse, allocative efficiency. We too find descriptive evidence of a negative correlation between the initial level of dispersion in 2002 and subsequent growth rates at the country-sector level ( Figure 5), in particular for capital misallocation.…”

“…The difference in the variation of the two types of input misallocation, highlighted in Section 3, could possibly suggest that capital-specific factors rather than common shocks were mainly at work in the period under study. Similarly to Gamberoni et al (2016), we adopt a conditional convergence model, based on Barro and Sala-i-Martin (2004), which takes the following form:…”