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Does Corruption Hinder Investment? Evidence from Russian Regions

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  • Nikita Zakharov

    () (Department of International Economic Policy, University of Freiburg)

Abstract

This paper investigates the causal relationship between corruption and fixed capital investment in Russian regions. The panel data on corruption allow to control for unobserved heterogeneity with fixed effects estimation. We address the problem of endogeneity by introducing novel instrumental variables for corruption: the presence of free press and violations of journalists' rights. Our main result is the strong negative effect of corruption on aggregate investment in fixed capital. Disaggregating investment by ownership, we find that corruption decreases private investment, but not investment made by state-owned companies. The effect is larger for companies with foreign ownership. We also observe a strong negative relationship between regional import of capital goods and corruption.

Suggested Citation

  • Nikita Zakharov, 2017. "Does Corruption Hinder Investment? Evidence from Russian Regions," Discussion Paper Series 33, Department of International Economic Policy, University of Freiburg, revised Feb 2017.
  • Handle: RePEc:fre:wpaper:33
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    References listed on IDEAS

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    Cited by:

    1. Günther G. Schulze & Nikita Zakharov, 2018. "Corruption in Russia - Historic Legacy and Systemic Nature," CESifo Working Paper Series 6864, CESifo Group Munich.

    More about this item

    Keywords

    Corruption; Investment; Russia; Freedom of Press; Import of Capital Goods;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy

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