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Corruption and firm performance in Africa

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  • John McArthur
  • Francis Teal

Abstract

This paper uses survey data to investigate empirically the importance of corruption in determining firm performance in Africa. We allow for the possibility of perception bias on the part of the respondents and for corruption being endogenous. We find that corruption is linked to significant adverse effects on firm performance in two ways. At the firm (or “local”) level, companies that pay bribes have 20 percent lower levels of output per worker. At the economywide (or “global”) level, firms in countries with pervasive corruption are some 70 per cent less efficient than firms in countries free of corruption. We thus provide evidence that competitive uncoordinated local corruption has substantial global effects.

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Bibliographic Info

Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2002-10.

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Date of creation: 2002
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Handle: RePEc:csa:wpaper:2002-10

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  1. Stephen Nickell, 1993. "Competition and Corporate Performance," CEP Discussion Papers, Centre for Economic Performance, LSE dp0182, Centre for Economic Performance, LSE.
  2. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195060119, October.
  3. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  4. Kaufmann, Daniel & Wei, Shang-Jin, 1999. "Does 'Grease Money' Speed Up the Wheels of Commerce?," MPRA Paper 8209, University Library of Munich, Germany.
  5. Paul Collier & Jan Willem Gunning, 1998. "Explaining African economic performance," Economics Series Working Papers, University of Oxford, Department of Economics WPS/1997-02.2, University of Oxford, Department of Economics.
  6. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  7. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(3), pages 681-712, August.
  8. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1733, Harvard - Institute of Economic Research.
  9. Easterly, W & Levine, R, 1996. "Africa's Growth Tragedy : Policies and Ethnic Divisions," Papers, Harvard - Institute for International Development 536, Harvard - Institute for International Development.
  10. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, American Economic Association, vol. 91(5), pages 1369-1401, December.
  11. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 82(1), pages 1-11, February.
  12. Shang-Jin Wei & Yi Wu, 2002. "Negative Alchemy? Corruption, Composition of Capital Flows, and Currency Crises," NBER Chapters, National Bureau of Economic Research, Inc, in: Preventing Currency Crises in Emerging Markets, pages 461-506 National Bureau of Economic Research, Inc.
  13. Bliss, Christopher & Di Tella, Rafael, 1997. "Does Competition Kill Corruption?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(5), pages 1001-23, October.
  14. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, Elsevier, vol. 76(3), pages 459-493, June.
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Cited by:
  1. Elizabeth Asiedu & James Freeman, 2008. "The Effect of Corruption on Investment Growth: Evidence from Firms in Latin America, Sub-Saharan Africa and Transition Countries," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS, University of Kansas, Department of Economics 200802, University of Kansas, Department of Economics.
  2. Humphry Hung, 2008. "Normalized Collective Corruption in a Transitional Economy: Small Treasuries in Large Chinese Enterprises," Journal of Business Ethics, Springer, Springer, vol. 79(1), pages 69-83, April.
  3. Julien Hanoteau & Virginie Vial, 2014. "Grease or sand the wheel? The effects of individual bribe payments on aggregate productivity growth," EcoMod2014, EcoMod 6685, EcoMod.
  4. Vial, Virginie & Hanoteau, Julien, 2010. "Corruption, Manufacturing Plant Growth, and the Asian Paradox: Indonesian Evidence," World Development, Elsevier, Elsevier, vol. 38(5), pages 693-705, May.

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