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Intervention, corruption and capture: the nexus between enterprises and the state

  • Joel Hellman

    (World Bank, and the London School of Economics)

  • Mark Schankerman

    (European Bank for Reconstruction and Development)

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    We study the nexus between enterprises and the state in transition countries, using new enterprise survey data. We examine the quality of governance, state intervention in enterprise decision-making, state benefits to firms and corruption payments. The quality of governance varies both across countries and across different dimensions of governance within countries. Economic reform improves governance in countries with a low degree of “state capture” by vested interests, but not in high-capture countries. Despite reform, state intervention in firm decisions continues, but it varies substantially across firms. At the micro level (within a country), there is clear substitution between the degree of state intervention, state benefits to firms and corruption payments, which is consistent with a bargaining model of politicians and firms. But at the macro level (across countries) these elements are complementary, suggesting that politicians, perhaps under pressure from captor firms, have some control over the scope of regulation and intervention.

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    Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 58.

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    Length: 31 pages
    Date of creation: Oct 2000
    Date of revision:
    Handle: RePEc:ebd:wpaper:58
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