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


  • Elizabeth Asiedu
  • James Freeman


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. Copyright © 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Ltd.

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

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    References listed on IDEAS

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    Cited by:

    1. Nikita Zakharov, 2017. "Does Corruption Hinder Investment? Evidence from Russian Regions," Discussion Paper Series 33, Department of International Economic Policy, University of Freiburg, revised Feb 2017.
    2. Nurudeen Abu & Mohd Zaini Abd Karim & Mukhriz Izraf Azman Aziz, 2015. "Corruption, Political Instability and Economic Development in the Economic Community of West African States (ECOWAS): Is There a Causal Relationship?," Contemporary Economics, University of Finance and Management in Warsaw, vol. 9(1), April.
    3. repec:eee:ecanpo:v:54:y:2017:i:c:p:83-95 is not listed on IDEAS
    4. Tomson Ogwang & Danny Cho, 2014. "A Conceptual Framework for Constructing a Corruption Diffusion Index," Journal of Business Ethics, Springer, vol. 125(1), pages 1-9, November.
    5. repec:eco:journ1:2017-05-25 is not listed on IDEAS
    6. Ugur, Mehmet & Dasgupta, Nandini, 2011. "Corruption and economic growth: A meta-analysis of the evidence on low-income countries and beyond," MPRA Paper 31226, University Library of Munich, Germany, revised 31 May 2011.
    7. Dasgupta, Shouro & De Cian, Enrica, 2016. "Institutions and the Environment: Existing Evidence and Future Directions," MITP: Mitigation, Innovation,and Transformation Pathways 240747, Fondazione Eni Enrico Mattei (FEEM).
    8. Qu, Guangjun & Sylwester, Kevin & Wang, Feng, 2016. "Anticorruption and Growth: Evidence from China," MPRA Paper 72190, University Library of Munich, Germany.
    9. Colin C. Williams & Abbi M. Kedir, 2016. "The Impacts Of Corruption On Firm Performance: Some Lessons From 40 African Countries," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 21(04), pages 1-18, December.
    10. Gregory N. Price & Juliet U. Elu, 2014. "Does regional currency integration ameliorate global macroeconomic shocks in sub-Saharan Africa? The case of the 2008-2009 global financial crisis," Journal of Economic Studies, Emerald Group Publishing, vol. 41(5), pages 737-750, September.
    11. repec:ksp:journ2:v:4:y:2017:i:1:p:19-54 is not listed on IDEAS
    12. Andrzej Cieslik & Lukasz Goczek, 2015. "On The Evolution Of Corruption Patterns In The Post-Communist Countries," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 10(1), pages 33-53, March.
    13. repec:eee:finlet:v:21:y:2017:i:c:p:235-240 is not listed on IDEAS
    14. repec:kap:sbusec:v:48:y:2017:i:3:d:10.1007_s11187-016-9802-1 is not listed on IDEAS
    15. Elizabeth Kasekende & Charles Abuka & Marr Sar, 2016. "Extractive Industries and Corruption: Investigating the Effectiveness of the EITI as a Scrutiny Mechanism," Research Papers RP_326, African Economic Research Consortium.
    16. Sdiri, Hanen & Ayadi, Mohamed, 2016. "Does innovation foster or mitigate the corruption obstacle? Firm-level evidence from Tunisia," MPRA Paper 71088, University Library of Munich, Germany.
    17. Saidi, Hichem & El Montasser, Ghassen & Ajmi, Noomen, 2018. "Renewable Energy, Quality of Institutions and Economic Growth in MENA Countries: a Panel Cointegration Approach," MPRA Paper 84055, University Library of Munich, Germany.
    18. Diaby, Aboubacar & Sylwester, Kevin, 2014. "Bureaucratic competition and public corruption: Evidence from transition countries," European Journal of Political Economy, Elsevier, vol. 35(C), pages 75-87.
    19. repec:unu:wpaper:wp2012-027 is not listed on IDEAS
    20. Barasa, Laura & Knoben, Joris & Vermeulen, Patrick & Kimuyu, Peter & Kinyanjui, Bethuel, 2017. "Institutions, resources and innovation in East Africa: A firm level approach," Research Policy, Elsevier, vol. 46(1), pages 280-291.
    21. Moradbeigi, Maryam & Law, Siong Hook, 2016. "Growth volatility and resource curse: Does financial development dampen the oil shocks?," Resources Policy, Elsevier, vol. 48(C), pages 97-103.
    22. Diaby, Aboubacar & Sylwester, Kevin, 2015. "Corruption and Market Competition: Evidence from Post-Communist Countries," World Development, Elsevier, vol. 66(C), pages 487-499.
    23. Soldatos, Gerasimos T., 2014. "Bureaucracy, Underground Activities, and Fluctuations," MPRA Paper 60858, University Library of Munich, Germany.

    More about this item

    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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