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A Dynamic Managerial Theory of Corruption and Productivity Among Firms in Developing Countries

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  • James P. Gander

Abstract

In this paper, a simple dynamic model of efficient firm-level managerial resource allocation to two uses, one involving productivity activities and another one involving corruption activities to “get things done” was developed. The model follows the optimal control theory process. Two operational equations are derived representing firm growth and shadow-price behavior. Firm-level interview data on surrogates for the firm’s inputs was used for domestically owned firms in developing economies covering two time periods. The SUR method was used to estimate jointly the two equations. Overall, the model fit the data quite well. It was found that the managerial surrogates; namely, capacity utilization, formal worker training, and the time spent dealing with government regulations, were positive and significant predictors of firm output growth and the shadow-price of its capital with a few negative exceptions. Implicitly, there appears to be a trade-off between managerial resources used for growth and those used for the shadow price. Policy implications were discussed briefly.

Suggested Citation

  • James P. Gander, 2013. "A Dynamic Managerial Theory of Corruption and Productivity Among Firms in Developing Countries," Working Paper Series, Department of Economics, University of Utah 2013_10, University of Utah, Department of Economics.
    • Handle: RePEc:uta:papers:2013_10
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    File URL: http://economics.utah.edu/research/publications/2013_10.pdf
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    References listed on IDEAS

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    1. James P. Gander, 2010. "The managerial limit to the growth of Firms revisited," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(8), pages 549-555, December.
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    8. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2008. "Governance matters VII : aggregate and individual governance indicators 1996-2007," Policy Research Working Paper Series 4654, The World Bank.
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    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • K49 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Other
    • M29 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Other

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