IDEAS home Printed from https://ideas.repec.org/a/spr/eurasi/v11y2021i2d10.1007_s40821-020-00164-8.html
   My bibliography  Save this article

Corruption and firm innovation: a grease or sand in the wheels of commerce? Evidence from lower-middle and upper-middle income economies

Author

Listed:
  • Chei Bukari

    (University of Cape Coast)

  • Emm anuel Atta Anaman

    (University of Education, Winneba)

Abstract

The phenomenon of corruption has become topical in contemporary development discourse as it is generally believed that corruption has adverse implications especially in developing countries at both micro and macroeconomic levels. This paper examines the effect of corruption on firm’s innovativeness using firm-level data drawn from 33 lower-middle and upper-middle income economies. Four analytical approaches: OLS, 2SLS, Probit and IV Probit estimations were employed to correct for the potential endogeneity in corruption and also allow for the effect of corruption to vary by region and income status. Results show that albeit corruption acts as a sand in the wheels of commerce, its effect on innovation varies significantly across regions and income status: While corruption generally has a negative and significant effect on firm innovativeness, its effect is more intense in lower-middle income countries and Africa. Corruption reduces the likelihood of firm’s adoption of innovation such as acquisition of quality ISO certificates, patents and undertaking excellent market research and development, a finding which is more pronounced in the case of lower-middle-income economies and Africa. The main policy implication from this study is the unparalleled trade-off between corruption and institutional quality within the public sector. As a policy recommendation, institutional weaknesses and failures that manifest in the public sector in Asia and Africa need to be urgently tackled so as to reduce corruption and its deleterious effects on firm innovation.

Suggested Citation

  • Chei Bukari & Emm anuel Atta Anaman, 2021. "Corruption and firm innovation: a grease or sand in the wheels of commerce? Evidence from lower-middle and upper-middle income economies," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(2), pages 267-302, June.
  • Handle: RePEc:spr:eurasi:v:11:y:2021:i:2:d:10.1007_s40821-020-00164-8
    DOI: 10.1007/s40821-020-00164-8
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s40821-020-00164-8
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s40821-020-00164-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Wadho, Waqar & Chaudhry, Azam, 2018. "Innovation and firm performance in developing countries: The case of Pakistani textile and apparel manufacturers," Research Policy, Elsevier, vol. 47(7), pages 1283-1294.
    2. Jamie D. Collins & Jeffery S. McMullen & Christopher R. Reutzel, 2016. "Distributive justice, corruption, and entrepreneurial behavior," Small Business Economics, Springer, vol. 47(4), pages 981-1006, December.
    3. Christopher J. Boudreaux & Boris N. Nikolaev & Randall G. Holcombe, 2018. "Corruption and destructive entrepreneurship," Small Business Economics, Springer, vol. 51(1), pages 181-202, June.
    4. Mehmet Ugur, 2014. "Corruption'S Direct Effects On Per-Capita Income Growth: A Meta-Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 28(3), pages 472-490, July.
    5. SooGeun Ahn & Jeewhan Yoon & YoungJun Kim, 2018. "The innovation activities of small and medium-sized enterprises and their growth: quantile regression analysis and structural equation modeling," The Journal of Technology Transfer, Springer, vol. 43(2), pages 316-342, April.
    6. Colin C. Williams & Abbi M. Kedir, 2019. "Explaining cross-country variations in the prevalence of informal sector competitors: lessons from the World Bank Enterprise Survey," International Entrepreneurship and Management Journal, Springer, vol. 15(3), pages 677-696, September.
    7. De Rosa, Donato & Gooroochurn, Nishaal & Görg, Holger, 2010. "Corruption and productivity firm-level evidence from the BEEPS survey," Kiel Working Papers 1632, Kiel Institute for the World Economy (IfW).
    8. Axel Dreher & Martin Gassebner, 2013. "Greasing the wheels? The impact of regulations and corruption on firm entry," Public Choice, Springer, vol. 155(3), pages 413-432, June.
    9. Dungey, Mardi & Doko Tchatoka, Firmin & Yanotti, María B., 2018. "Using multiple correspondence analysis for finance: A tool for assessing financial inclusion," International Review of Financial Analysis, Elsevier, vol. 59(C), pages 212-222.
    10. Riccardo Pelizzo & Eduardo Araral & Anton Pak & Wu Xun, 2016. "Determinants of Bribery: Theory and Evidence from Sub-Saharan Africa," African Development Review, African Development Bank, vol. 28(2), pages 229-240, June.
    11. Andrin Spescha & Martin Woerter, 2019. "Innovation and firm growth over the business cycle," Industry and Innovation, Taylor & Francis Journals, vol. 26(3), pages 321-347, March.
    12. Fan, Joseph P.H. & Huang, Jun & Morck, Randall & Yeung, Bernard, 2017. "Institutional determinants of vertical integration in China," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 524-539.
    13. Felipe Starosta de Waldemar, 2012. "New Products and Corruption: Evidence from Indian Firms," Post-Print hal-00966301, HAL.
    14. Bo Rothstein & Daniel Eek, 2009. "Political Corruption and Social Trust," Rationality and Society, , vol. 21(1), pages 81-112, February.
    15. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 569-600.
    16. John McArthur & Francis Teal, 2002. "Corruption and firm performance in Africa," CSAE Working Paper Series 2002-10, Centre for the Study of African Economies, University of Oxford.
    17. Felipe Starosta Waldemar, 2012. "New Products and Corruption: Evidence from I ndian Firms," The Developing Economies, Institute of Developing Economies, vol. 50(3), pages 268-284, September.
    18. Axel Demenet & Hoang-Anh Ho & Sarah Morcillo, 2017. "Firm-level corruption: Unravelling sand from grease," WIDER Working Paper Series 123, World Institute for Development Economic Research (UNU-WIDER).
    19. Guarascio, Dario & Tamagni, Federico, 2019. "Persistence of innovation and patterns of firm growth," Research Policy, Elsevier, vol. 48(6), pages 1493-1512.
    20. Yanyan Xiao & Manfred Lenzen & Catherine Benoît†Norris & Gregory A. Norris & Joy Murray & Arunima Malik, 2018. "The Corruption Footprints of Nations," Journal of Industrial Ecology, Yale University, vol. 22(1), pages 68-78, February.
    21. Chor, Davin, 2010. "Unpacking sources of comparative advantage: A quantitative approach," Journal of International Economics, Elsevier, vol. 82(2), pages 152-167, November.
    22. Paunov, Caroline, 2016. "Corruption's asymmetric impacts on firm innovation," Journal of Development Economics, Elsevier, vol. 118(C), pages 216-231.
    23. Coad, Alex & Rao, Rekha, 2008. "Innovation and firm growth in high-tech sectors: A quantile regression approach," Research Policy, Elsevier, vol. 37(4), pages 633-648, May.
    24. Chrisovalantis Malesios & Antonis Skouloudis & Prasanta Kumar Dey & Fouad Ben Abdelaziz & Apostolos Kantartzis & Konstantinos Evangelinos, 2018. "Impact of small‐ and medium‐sized enterprises sustainability practices and performance on economic growth from a managerial perspective: Modeling considerations and empirical analysis results," Business Strategy and the Environment, Wiley Blackwell, vol. 27(7), pages 960-972, November.
    25. Julien Hanoteau & Virginie Vial, 2020. "Institutional quality, conforming and evasive entrepreneurship," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(1), pages 97-121, March.
    26. Chor, Davin & Manova, Kalina, 2012. "Off the cliff and back? Credit conditions and international trade during the global financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 117-133.
    27. Mohsin Habib & Leon Zurawicki, 2002. "Corruption and Foreign Direct Investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 33(2), pages 291-307, June.
    28. Walthoff-Borm, Xavier & Schwienbacher, Armin & Vanacker, Tom, 2018. "Equity crowdfunding: First resort or last resort?," Journal of Business Venturing, Elsevier, vol. 33(4), pages 513-533.
    29. Paul Collier, 2000. "How to Reduce Corruption," African Development Review, African Development Bank, vol. 12(2), pages 191-205.
    30. Stefano Bianchini & Gabriele Pellegrino & Federico Tamagni, 2018. "Innovation complementarities and firm growth," Industrial and Corporate Change, Oxford University Press, vol. 27(4), pages 657-676.
    31. Hanousek, Jan & Kochanova, Anna, 2016. "Bribery environments and firm performance: Evidence from CEE countries," European Journal of Political Economy, Elsevier, vol. 43(C), pages 14-28.
    32. Vartuhí Tonoyan & Robert Strohmeyer & Mohsin Habib & Manfred Perlitz, 2010. "Corruption and Entrepreneurship: How Formal and Informal Institutions Shape Small Firm Behavior in Transition and Mature Market Economies," Entrepreneurship Theory and Practice, , vol. 34(5), pages 803-832, September.
    33. Wieneke, Axel & Gries, Thomas, 2011. "SME performance in transition economies: The financial regulation and firm-level corruption nexus," Journal of Comparative Economics, Elsevier, vol. 39(2), pages 221-229, June.
    34. Wang, Yuanyuan & You, Jing, 2012. "Corruption and firm growth: Evidence from China," China Economic Review, Elsevier, vol. 23(2), pages 415-433.
    35. Nirosha Hewa Wellalage & Stuart Locke & Helen Samujh, 2019. "Corruption, Gender and Credit Constraints: Evidence from South Asian SMEs," Journal of Business Ethics, Springer, vol. 159(1), pages 267-280, September.
    36. Francis Teal & John McArthur, 2002. "Corruption and Firm Performance in Africa," Economics Series Working Papers WPS/2002-10, University of Oxford, Department of Economics.
    37. Nguyen, Ngoc Anh & Doan, Quang Hung & Nguyen, Ngoc Minh & Tran-Nam, Binh, 2016. "The impact of petty corruption on firm innovation in Vietnam," MPRA Paper 71902, University Library of Munich, Germany.
    38. Elena Alexandra Nenu & Georgeta Vintilă & Ştefan Cristian Gherghina, 2018. "The Impact of Capital Structure on Risk and Firm Performance: Empirical Evidence for the Bucharest Stock Exchange Listed Companies," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 6(2), pages 1-29, April.
    39. Hallward-Driemeier, Mary, 2009. "Who survives ? the impact of corruption, competition and property rights across firms," Policy Research Working Paper Series 5084, The World Bank.
    40. 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.
    41. 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.
    42. Hashi, Iraj & Stojčić, Nebojša, 2013. "The impact of innovation activities on firm performance using a multi-stage model: Evidence from the Community Innovation Survey 4," Research Policy, Elsevier, vol. 42(2), pages 353-366.
    43. Stanislav Kolenikov & Gustavo Angeles, 2009. "Socioeconomic Status Measurement With Discrete Proxy Variables: Is Principal Component Analysis A Reliable Answer?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(1), pages 128-165, March.
    44. Corinne Deléchat & Ms. Monique Newiak & Mr. Fan Yang & Goksu Aslan, 2017. "Inequality in Financial Inclusion and Income Inequality," IMF Working Papers 2017/236, International Monetary Fund.
    45. Burrus, Robert T. & Edward Graham, J. & Jones, Adam T., 2018. "Regional innovation and firm performance," Journal of Business Research, Elsevier, vol. 88(C), pages 357-362.
    46. Grillitsch, Markus & Schubert, Torben & Srholec, Martin, 2019. "Knowledge base combinations and firm growth," Research Policy, Elsevier, vol. 48(1), pages 234-247.
    47. Vial, Virginie & Hanoteau, Julien, 2010. "Corruption, Manufacturing Plant Growth, and the Asian Paradox: Indonesian Evidence," World Development, Elsevier, vol. 38(5), pages 693-705, May.
    48. Chudnovsky, Daniel & Lopez, Andres & Pupato, German, 2006. "Innovation and productivity in developing countries: A study of Argentine manufacturing firms' behavior (1992-2001)," Research Policy, Elsevier, vol. 35(2), pages 266-288, March.
    49. Micheline Goedhuys & Pierre Mohnen & Tamer Taha, 2016. "Corruption, innovation and firm growth: firm-level evidence from Egypt and Tunisia," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 6(3), pages 299-322, December.
    50. Axel Demenet & Hoang-Anh Ho & Sarah Morcillo, 2017. "Firm-level corruption: Unravelling sand from grease," WIDER Working Paper Series wp-2017-123, World Institute for Development Economic Research (UNU-WIDER).
    51. Paolo Mauro, 2004. "The Persistence of Corruption and Slow Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 51(1), pages 1-1.
    52. Jacques MAIRESSE & Pierre MOHNEN & Yanyun ZHAO & Feng ZHEN, 2012. "Globalization, Innovation and Productivity in Manufacturing Firms: A Study of Four Sectors of China," Working Papers DP-2012-10, Economic Research Institute for ASEAN and East Asia (ERIA).
    53. Hasan Ayaydin & Pinar Hayaloglu, 2014. "The Effect of Corruption on Firm Growth: Evidence from Firms in Turkey," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(5), pages 607-624, May.
    54. Abdeljaouad Ezzrari & Paolo Verme, 2013. "A Multiple Correspondence Analysis Approach to the Measurement of Multidimensional Poverty in Morocco 2001–2007," Economic Studies in Inequality, Social Exclusion, and Well-Being, in: Valerie Berenger & Florent Bresson (ed.), Poverty and Social Exclusion around the Mediterranean Sea, edition 127, chapter 0, pages 181-209, Springer.
    55. Jose Godinez & Ling Liu, 2018. "Corruption and Its Effects on FDI: Analysing the Interaction Between the Corruption Levels of the Home and Host Countries and Its Effects at the Decision-Making Level," Journal of Business Ethics, Springer, vol. 147(4), pages 705-719, February.
    56. Natanya Meyer & Jacques de Jongh, 2018. "The Importance of Entrepreneurship as a Contributing Factor to Economic Growth and Development: The Case of Selected European Countries," Journal of Economics and Behavioral Studies, AMH International, vol. 10(4), pages 287-299.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chei Bukari & Emm anuel Atta Anaman, 0. "Corruption and firm innovation: a grease or sand in the wheels of commerce? Evidence from lower-middle and upper-middle income economies," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 0, pages 1-36.
    2. Lurdes Martins & Jorge Cerdeira & Aurora A.C. Teixeira, 2020. "Does corruption boost or harm firms’ performance in developing and emerging economies? A firm‐level study," The World Economy, Wiley Blackwell, vol. 43(8), pages 2119-2152, August.
    3. Syed Muhammad Imran & Hafeez Ur Rehman & Rana Ejaz Ali Khan, 2020. "Effect of corruption on firm level innovation: Evidence from Pakistan," Economics and Business Letters, Oviedo University Press, vol. 9(1), pages 41-47.
    4. Gaygysyz Ashyrov & Jaan Masso, 2020. "Does corruption affect local and foreign-owned companies differently? Evidence from the BEEPS survey," Post-Communist Economies, Taylor & Francis Journals, vol. 32(3), pages 306-329, April.
    5. Colin C. Williams & Alvaro Martinez-Perez, 2016. "Evaluating the impacts of corruption on firm performance in developing economies: an institutional perspective," International Journal of Business and Globalisation, Inderscience Enterprises Ltd, vol. 16(4), pages 401-422.
    6. Adomako, Samuel & Amankwah-Amoah, Joseph & Tarba, Shlomo Y. & Khan, Zaheer, 2021. "Perceived corruption, business process digitization, and SMEs’ degree of internationalization in sub-Saharan Africa," Journal of Business Research, Elsevier, vol. 123(C), pages 196-207.
    7. Eugene E. Ezebilo & Francis Odhuno & Philip Kavan, 2019. "The Perceived Impact of Public Sector Corruption on Economic Performance of Micro, Small, and Medium Enterprises in a Developing Country," Economies, MDPI, Open Access Journal, vol. 7(3), pages 1-17, August.
    8. Paunov, Caroline, 2016. "Corruption's asymmetric impacts on firm innovation," Journal of Development Economics, Elsevier, vol. 118(C), pages 216-231.
    9. Stefan Borsky & Esther Blanco, 2014. "Setting one voluntary standard in a heterogeneous Europe - EMAS, corruption and stringency of environmental regulations," Working Papers 2014-29, Faculty of Economics and Statistics, University of Innsbruck.
    10. Rodríguez-Pose, Andrés & Zhang, Min, 2020. "The cost of weak institutions for innovation in China," Technological Forecasting and Social Change, Elsevier, vol. 153(C).
    11. Wadho, Waqar & Chaudhry, Azam, 2020. "Innovation Strategies and Productivity Growth in Developing Countries: Evidence from Pakistan," GLO Discussion Paper Series 466, Global Labor Organization (GLO).
    12. Li Tian & Jing Yu Yang & Jiatao Li, 2021. "Does legal registration help or hurt? The effect of government corruption on resource acquisition by nascent ventures in an emerging economy," Asia Pacific Journal of Management, Springer, vol. 38(2), pages 547-572, June.
    13. Nguyen, Ngoc Anh & Doan, Quang Hung & Nguyen, Ngoc Minh & Tran-Nam, Binh, 2016. "The impact of petty corruption on firm innovation in Vietnam," MPRA Paper 71902, University Library of Munich, Germany.
    14. Paunov C., 2014. "Democratizing intellectual property systems : how corruption hinders equal opportunities for firms," MERIT Working Papers 2014-077, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    15. Xuemei Xie & Guoyou Qi & Kevin Xiaoguo Zhu, 2019. "Corruption and New Product Innovation: Examining Firms’ Ethical Dilemmas in Transition Economies," Journal of Business Ethics, Springer, vol. 160(1), pages 107-125, November.
    16. Valerija Botrić & Ljiljana Božić, 2015. "Innovators' vs Non-innovators' perceptions of corruption in European post-transition economies," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 8(3), pages 47-58, December.
    17. Francesca Battaglia & Marika Carboni & Antonella Francesca Cicchiello & Stefano MonferrÃ, 2021. "Assessing the Effects of Anti-corruption Law on Entrepreneurial Finance: Evidence from Latin America," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 20(1), pages 48-78, April.
    18. Elchin Aghazada & Gaygysyz Ashyrov, 2021. "Corruption And Firm Innovation: Evidence From Post-Soviet Countries," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 129, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    19. Gaganis, Chrysovalantis & Pasiouras, Fotios & Voulgari, Fotini, 2019. "Culture, business environment and SMEs' profitability: Evidence from European Countries," Economic Modelling, Elsevier, vol. 78(C), pages 275-292.
    20. Oznur Ozdamar & Eleftherios Giovanis & Sahizer Samuk, 2020. "State business relations and the dynamics of job flows in Egypt and Turkey," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(4), pages 519-558, December.

    More about this item

    Keywords

    Corruption; Innovation; Africa; Asia; Lower and upper-middle income;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:eurasi:v:11:y:2021:i:2:d:10.1007_s40821-020-00164-8. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.