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Corruption and Firms

Author

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  • Colonnelli, Emanuele
  • Prem, Mounu

Abstract

We estimate the causal real economic effects of a randomized anticorruption crackdown on local governments in Brazil over the period 2003-2014. After anti-corruption audits, municipalities experience an increase in economic activity concentrated in sectors most dependent on government relationships. These effects spill over to nearby municipalities and are larger when the audits are covered by the media. Back-of-the-envelope estimates suggest that $1 away from corruption generates more than $3 in local value added. Using administrative matched employer-employee and firm-level datasets and novel face-to-face firm surveys we argue that corruption mostly acts as a barrier to entry, and by introducing costs and distortions on local government-dependent firms. The political misallocation of resources across firms plays a seemingly secondary role, indicating that at the local level most rents are captured by politicians and public officials rather than firms.

Suggested Citation

  • Colonnelli, Emanuele & Prem, Mounu, 2019. "Corruption and Firms," Working papers 18, Red Investigadores de Economía.
  • Handle: RePEc:rie:riecdt:18
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    Cited by:

    1. Gianmarco Daniele & Gemma Dipoppa, 2018. "Doing Business Below the Line: Screening, Mafias and Public Funds," BAFFI CAREFIN Working Papers 1898, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    2. Felipe González & Mounu Prem, 2020. "Losing your dictator: firms during political transition," Journal of Economic Growth, Springer, vol. 25(2), pages 227-257, June.
    3. Emanuele Colonnelli & Nicole Ntungire, 2018. "Construction and public procurement in Uganda," WIDER Working Paper Series 180, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    Corruption; Firms; Audits; Public Procurement; Misallocation; Labor Reallocation; Political Connections;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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