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The Effect of Corruption on Investment Growth: Evidence from Firms in Latin America, Sub-Saharan Africa and Transition Countries

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  • Elizabeth Asiedu

    (Department of Economics, The University of Kansas)

  • James Freeman

    (Department of Economics, Wheaton College)

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    Abstract

    Many of the empirical studies that analyze the impact of corruption on investment have three common features: they employ aggregate (country-level) data on investment, corruption is measured at the country-level, and data for countries from several regions are pooled together. This paper uses firm-level data on investment and measures corruption at the firm and country-level, and allows the effect of corruption to vary by region. Our dependent variable is firms’ investment growth and we employ six measures of corruption from four different sources: two firm-level measures and four country-level measures. We find that the effect of corruption on investments varies significantly across regions: corruption has a negative and significant effect on investment growth for firms in Transition countries but has no significant impact for firms in Latin America and Sub-Saharan Africa. Furthermore, among the variables included in the regressions (firm size, firm ownership, trade orientation, industry, GDP growth, inflation and openness to trade) corruption is the most important determinant of investment growth for Transition countries.

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    Bibliographic Info

    Paper provided by University of Kansas, Department of Economics in its series WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS with number 200802.

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    Length: 50 pages
    Date of creation: May 2008
    Date of revision:
    Handle: RePEc:kan:wpaper:200802

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    Keywords: Bribery; Corruption; Firm; Investment; Latin America and Caribbean; Sub-Saharan Africa; Transition Countries.;

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