Corruption and the Shadow Economy at the Regional Level

The links between corruption and the shadow economy have mostly been studied empirically at the country level. This paper contributes to this literature by examining the relationship at the sub-national level. Using World Bank Enterprise Survey data, we find that sub-national units in which more firms report that corruption is an obstacle to their operations also tend to have more firms that report informal competitors as an obstacle and vice versa. We also ask whether within country variation matters and find that regions with a bigger problem in one of these dimensions than their national average also tend to have a relatively bigger problem in the other dimension. Sub-Saharan Africa is different in that neither of these findings are evident in that sub-sample.