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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
  • James Freeman

Abstract

Most of the empirical studies that analyze the impact of corruption on investment have three common features: they employ 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, for Transition countries, corruption is the most important determinant of investment.

Suggested Citation

  • Elizabeth Asiedu & James Freeman, 2009. "The Effect of Corruption on Investment Growth: Evidence from Firms in Latin America, Sub‐Saharan Africa, and Transition Countries," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 200-214, May.
    • Handle: RePEc:bla:rdevec:v:13:y:2009:i:2:p:200-214
    DOI: 10.1111/j.1467-9361.2009.00507.x
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    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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