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Measuring governance, corruption, and State capture - how firms and bureaucrats shape the business environment in transition economies

Author

Listed:
  • Hellman, Joel S.
  • Jones, Geraint
  • Kaufmann, Daniel
  • Schankerman, Mark

Abstract

As a symptom of fundamental institutional weaknesses, corruption needs to be viewed within a broader governance framework. It thrives where the state is unable to reign over its bureaucracy, to protect property and contractual rights, or to provide institutions that support the rule off law. Furthermore, governance failures at the national level cannot be isolated from the interface between the corporate and state sectors, in particular from the heretofore under-emphasized influence that firms may exert on the state. Under certain conditions, corporate strategies may exacerbate mis-governance at the national level. An in-depth empirical assessment of the links between corporate behavior and national governance can thus provide particular insights. The 1999 Business Environment and Enterprise Performance Survey (BEEPS) - the transition economies component of the ongoing World Business Environment Survey - assesses in detail the various dimensions of governance from the perspective of about 3,000 firms in 20 countries. After introducing the survey framework and measurement approach, the authors present the survey results, focusing on governance, corruption, and state capture. By unbundling governance into its many dimensions, BEEPS permits an in-depth empirical assessment. The authors pay special attention to certain forms of grand corruption, notably state capture by parts of the corporate sector - that is, the propensity of firms to shape the underlying rules of the game by"purchasing"decrees, legislation, and influence at the central bank, which is found to be prevalent in a number of transition economies. The survey also measures other dimensions of grand corruption, including those associated with public procurement, and quantifies the more traditional ("prettier") forms of corruption. Cross-country surveys may suffer from bias if firms tend to systematically over- or underestimate the extent of problems within their country. The authors provide a new test of this potential bias, finding little evidence of country perception bias in BEEPS.

Suggested Citation

  • Hellman, Joel S. & Jones, Geraint & Kaufmann, Daniel & Schankerman, Mark, 2000. "Measuring governance, corruption, and State capture - how firms and bureaucrats shape the business environment in transition economies," Policy Research Working Paper Series 2312, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2312
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    References listed on IDEAS

    as
    1. Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
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    Citations

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    Cited by:

    1. Teuea Toatu, 2002. "Unravelling the Pacific Paradox," International and Development Economics Working Papers idec02-2, International and Development Economics.
    2. Erik Berglof & Patrick Bolton, 2002. "The Great Divide and Beyond: Financial Architecture in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 77-100, Winter.
    3. repec:wsi:jdexxx:v:22:y:2017:i:03:n:s1084946717500182 is not listed on IDEAS
    4. Bouton, Lawrence & Tiongson, Erwin R., 2010. "Subjective perceptions of financing constraints: How well do they reflect credit market conditions?," Emerging Markets Review, Elsevier, vol. 11(2), pages 98-105, June.
    5. Geoffrey Wyatt, 2002. "Corruption, Productivity and Transition," CERT Discussion Papers 0205, Centre for Economic Reform and Transformation, Heriot Watt University.
    6. Irina Slinko & Ekaterina Zhuravskaya & Evgeny Yakovlev, 2005. "Laws for Sale: Evidence from Russia," American Law and Economics Review, Oxford University Press, vol. 7(1), pages 284-318.
    7. Buccirossi, Paolo & Spagnolo, Giancarlo, 2006. "Leniency policies and illegal transactions," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1281-1297, August.
    8. Petrou, Andreas P. & Thanos, Ioannis C., 2014. "The “grabbing hand” or the “helping hand” view of corruption: Evidence from bank foreign market entries," Journal of World Business, Elsevier, vol. 49(3), pages 444-454.
    9. José Ernesto Amorós & Pekka Stenholm, 2013. "The Influence of the Quality of Government Institutions on Entrepreneurial Motivation: Exploring the Variance across Countries," Working Papers 1401, Departament Empresa, Universitat Autònoma de Barcelona, revised Dec 2013.
    10. Scott Gehlbach, 2003. "Taxability and Government Support of Business Activity: Testing Theories of Social-Contract Failure," Working Papers w0028, Center for Economic and Financial Research (CEFIR).
    11. Amoros, Jose Ernesto, 2009. "Entrepreneurship and Quality of Institutions," WIDER Working Paper Series 007, World Institute for Development Economic Research (UNU-WIDER).
    12. Evgeny Yakovlev & Ekaterina Zhuravskaya, 2005. "State Capture: From Yeltsin to Putin," Working Papers w0052, Center for Economic and Financial Research (CEFIR).
    13. Dawn L. Keig & Lance Eliot Brouthers & Victor B. Marshall, 2015. "Formal and Informal Corruption Environments and Multinational Enterprise Social Irresponsibility," Journal of Management Studies, Wiley Blackwell, vol. 52(1), pages 89-116, January.
    14. Wilson, John K. & Damania, Richard, 2005. "Corruption, political competition and environmental policy," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 516-535, May.
    15. de Jong, Eelke & Bogmans, Christian, 2011. "Does corruption discourage international trade?," European Journal of Political Economy, Elsevier, vol. 27(2), pages 385-398, June.
    16. Petrou, Andreas P., 2015. "Arbitrariness of corruption and foreign affiliate performance: A resource dependence perspective," Journal of World Business, Elsevier, vol. 50(4), pages 826-837.
    17. Traikova, Diana, 2013. "Determinants of non-farm entrepreneurial intentions in a transitional context: Evidence from rural Bulgaria," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 72, number 72.
    18. Maria Fernanda Tomaselli & Joleen Timko & Robert Kozak, 2013. "Assessing Small and Medium Forest Enterprises' Access to Microfinance: Case Studies from The Gambia," Journal of Development Studies, Taylor & Francis Journals, vol. 49(3), pages 334-347, March.
    19. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2005. "Governance matters IV : governance indicators for 1996-2004," Policy Research Working Paper Series 3630, The World Bank.
    20. Francisco, Manuela & Pontara, Nicola, 2007. "Does corruption impact on firms'ability to conduct business in Mauritania ? evidence from investment climate survey data," Policy Research Working Paper Series 4439, The World Bank.
    21. Othmani, Abdelhafidh & Slimani, Slah & Bakari, Sayef, 2015. "Les Effets de la Corruption sur le Commerce Extérieur de la Tunisie : Une Approche du Modèle de Gravité Statique durant la Période 1999-2012," MPRA Paper 80894, University Library of Munich, Germany.
    22. Othmani, Abdelhafidh & Slimani, Slah & Bakari, Sayef, 2015. "Les Effets de la Concurrence sur le Commerce Extérieur de la Tunisie : Une Approche du Modèle de Gravité Statique durant la Période 1999-2012
      [The Effects of Competition on Foreign Trade in Tunisia
      ," MPRA Paper 80885, University Library of Munich, Germany.

    More about this item

    Keywords

    Small Scale Enterprise; Decentralization; Corruption&Anitcorruption Law; Public Sector Corruption&Anticorruption Measures; Small and Medium Size Enterprises; National Governance; Governance Indicators; Corruption&Anitcorruption Law; Public Sector Corruption&Anticorruption Measures; Economic Policy; Institutions and Governance;

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • P5 - Economic Systems - - Comparative Economic Systems
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • H4 - Public Economics - - Publicly Provided Goods
    • K2 - Law and Economics - - Regulation and Business Law

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