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Predictable Corruption and Firm Investment: Evidence from a Natural Experiment and Survey of Cambodian Entrepreneurs

  • Malesky, Edmund J.
  • Samphantharak, Krislert
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    This paper utilizes a unique dataset of 500 firms in ten Cambodian provinces and a natural experiment to test a long-held convention in political economy that the predictability of a corruption is at least as important for firm investment decisions as the amount of bribes a firm must pay, provided the bribes are not prohibitively expensive. Our results suggest that this hypothesis is correct. Firms exposed to a shock to their bribe schedules by a change in governor invest significantly less in subsequent periods, as they wait for new information about their new chief executive. Furthermore, the amount of corruption (both measured by survey data and proxied by the number of commercial sex workers) is significantly lower in provinces with new governors. Our findings are robust to a battery of firm-level controls and province-level investment climate measures.

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    File URL: http://dx.doi.org/10.1561/100.00008013
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    Article provided by now publishers in its journal Quarterly Journal of Political Science.

    Volume (Year): 3 (2008)
    Issue (Month): 3 (October)
    Pages: 227-267

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    Handle: RePEc:now:jlqjps:100.00008013
    Contact details of provider: Web page: http://www.nowpublishers.com/

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