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Is paying bribes worthwhile? Corruption and innovation in middle-income countries

Author

Listed:
  • Roberto Iorio

    (Department of Political and Social Studies)

  • Maria Luigia Segnana

    (Department of Economics and Management)

Abstract

Corruption research in economics has a long history. Seminal early articles, and older findings contrast with newer developments which have as yet not been measured empirically; in particular the link between corruption and innovating activities suffers from multiple results, on both a national country and company or firm level. This paper examines the corruption-innovation link in transition and emerging countries as the decision to corrupt, and the ability to innovate may not be independent. An endogenous switching regression model is advocated as a suitably methodological way of modeling the joint determination of a firm’s innovation and possible bribes as it implies not only a selection between corrupted and non-corrupted firms, but also heterogeneous effects on innovative activities. The paper shows that, when the selection effect is adequately considered, different firms’ strategies arise. In particular, the treatment effect of corruption on innovation is positive for corrupting firms and negative for non-corrupting firms. Corrupting firms appear rational because paying bribes increases their innovative activities. However, non-corrupting firms also appear rational because in the presence of bribes, their innovating activities would be fewer. Thus, when the selection effect is adequately considered, the effects of so-called “greasing-and-sanding-the-wheels” can co-exist. Finally, the role of competition is also considered. Building on these results, future research can move forward to re-examine economic outcomes such as the productivity or the economic impact of corruption, in the presence (or absence) of selection processes.

Suggested Citation

  • Roberto Iorio & Maria Luigia Segnana, 2022. "Is paying bribes worthwhile? Corruption and innovation in middle-income countries," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 12(3), pages 475-504, September.
  • Handle: RePEc:spr:eurasi:v:12:y:2022:i:3:d:10.1007_s40821-022-00205-4
    DOI: 10.1007/s40821-022-00205-4
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    More about this item

    Keywords

    Corruption; Bribery; Emerging markets; Innovation; Endogenous switching;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • P27 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Performance and Prospects
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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