Corruption and product market competition: An empirical investigation
AbstractWe analyze the relationship between product market competition and corruption. The existing literature typically views corruption as extortion of “pre-existing” rents. This perspective suggests that competition usually reduces corruption, although generally the sign of this relationship is ambiguous. Shleifer and Vishny (1993), however, show that cost-reducing corruption is promoted by product market competition. That is, the effect of competition on corruption depends of the nature of corruption. Unlike the existing empirical studies that employ cross-country data and general measures of corruption, we test the competition–corruption relationship using firm-level information. Our approach overcomes significant estimation difficulties that result from relying on cross-country data; for instance, we include country fixed effects, and we deal with potential endogeneities by instrumenting competition with US capital–labor ratios for the appropriate industries. Contrary to the existing empirical work, we show that stronger product market competition is associated mostly with greater corruption of the cost-reducing variety.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Development Economics.
Volume (Year): 103 (2013)
Issue (Month): C ()
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Find related papers by JEL classification:
- D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
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