Bureaucratic Corruption and Entrepreneurship: An Empirical Analysis of Brazilian States

Entrepreneurial activity performs an important role in a nation's economic dynamics. Previous studies argue that institutional factors are correlated with the opening of new businesses, however, the literature is divergent as to the effect of bureaucratic corruption on entrepreneurship. Thus, this article aims to investigate the relationship between entrepreneurship and the incidence of bureaucratic corruption in Brazilian states and its Federal District (Brasilia), for the period of 2000-2008. This study's main hypothesis is that opening a business in Brazilian states is negatively affected by the incidence of corruption. Using a regression method with panel data, we estimated models with pooled data and fixed and random effects. The term entrepreneurship is adopted as the act of starting a new business, as in Say (1816), Mescon and Montanari (1981) and Lachman (1980). To measure corruption, we used the General Index of Corruption for Brazilian states (Boll, 2010), and to represent entrepreneurship, we used firm entry per capita by state. Tests of the Chow (1960), Hausman (1978) e Breusch and Pagan (1979) indicate that the random effects model is more appropriate, and the results indicate a positive correlation between bureaucratic corruption and entrepreneurial activity, contradicting the hypothesis expected and found in previous articles about Brazil.