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The impact of corruption and ownership on the performance of firms in Central and Eastern Europe

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  • Sandra Blagojević
  • Jože P. Damijan

Abstract

This article investigates how the efficiency of the business environment and corruption (informal payments and state capture) affect the microeconomic performance of firms. The novelty of the study is to look at the interaction of these effects with firm ownership. We use firm-level micro data collected by the Business Environment and Enterprise Performance Survey (BEEPS) for 27 transition countries for 2002--09. Among other data, BEEPS collects information on different forms of corruption at the firm level and firm ownership. We find the somewhat surprising result that private firms (domestic and foreign-owned) are more involved in both informal payments and state capture. Our results also reveal that foreign-owned firms that are involved in informal payments are likely to benefit from these corrupt practices. On the other hand, state-owned firms are more likely to experience negative effects of involvement in corruption on productivity growth. After 2004 involvement of firms in corrupt practices diminished and their negative impact on firm performance declined, indicating an improvement in the stability of the business environment and law enforcement.

Suggested Citation

  • Sandra Blagojević & Jože P. Damijan, 2013. "The impact of corruption and ownership on the performance of firms in Central and Eastern Europe," Post-Communist Economies, Taylor & Francis Journals, vol. 25(2), pages 133-158, June.
    • Handle: RePEc:taf:pocoec:v:25:y:2013:i:2:p:133-158
    DOI: 10.1080/14631377.2013.787734
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    References listed on IDEAS

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    1. Knack, Stephen, 2006. "Measuring corruption in Eastern Europe and Central Asia : a critique of the cross-country indicators," Policy Research Working Paper Series 3968, The World Bank.
    2. 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 Kiel).
    3. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    4. Cheryl Gray & Joel Hellman & Randi Ryterman, 2004. "Anticorruption in Transition 2 : Corruption in Enterprise-State Interactions in Europe and Central Asia 1999-2002," World Bank Publications - Books, The World Bank Group, number 14957, December.
    5. Axel Dreher & Thomas Herzfeld, 2005. "The Economic Costs of Corruption: A Survey and New Evidence," Public Economics 0506001, University Library of Munich, Germany.
    6. Hellman, Joel S. & Jones, Geraint & Kaufmann, daniel, 2000. ""Seize the state, seize the day": state capture, corruption, and influence in transition," Policy Research Working Paper Series 2444, The World Bank.
    7. Mr. Arvind Subramanian & Mr. Francesco Trebbi & Mr. Dani Rodrik, 2002. "Institutions Rule: The Primacy of Institutions over Integration and Geography in Economic Development," IMF Working Papers 2002/189, International Monetary Fund.
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    Cited by:

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    3. Traikova, Diana & Manolova, Tatiana S. & Möllers, Judith & Buchenrieder, Gertrud, 2017. "Corruption perceptions and entrepreneurial intentions in a transitional context - The case of rural Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 22(03), pages 1-21.
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    5. De Rosa Donato & Gooroochurn Nishaal & Görg Holger, 2015. "Corruption and Productivity: Firm-level Evidence," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 235(2), pages 115-138, April.
    6. 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.
    7. Malkina, M. & Ovchinnikov, V., 2020. "Influence of regulatory burden and involvement of business in corruption on revenue: Grease vs sand effect," Journal of the New Economic Association, New Economic Association, vol. 47(3), pages 40-65.
    8. Lee, Mina & Mutlu, Canan & Lee, Seung-Hyun, 2023. "Bribery and Firm Growth: Sensemaking in CEE and Post-Soviet Countries," Journal of International Management, Elsevier, vol. 29(1).
    9. Victoria Golikova & Boris Kuznetsov, 2017. "Suboptimal Size: Factors Preventing the Growth of Russian Small and Medium-Sized Enterprises," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 11(3), pages 83-93.
    10. Natalya Solodilova & Rustam Malikov & Konstantin Grishin, 2018. "Methodological Tools to Measure the State of Regional Entrepreneurial Ecosystem," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(4), pages 1256-1269.
    11. Veronika Linhartová & Martina Halásková, 2022. "Determinants of corruption: a panel data analysis of Visegrad countries," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 17(1), pages 51-79, March.
    12. Traikova, Diana & Manolova, Tatiana & Möllers, Judith & Buchenrieder, Gertrud, 2014. "Bribing culture and rural start-up plans in transition: evidence from Bulgaria," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182794, European Association of Agricultural Economists.

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