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Heard melodies are sweet, but those unheard are sweeter : understanding corruption using cross-national firm-level surveys

  • Jensen, Nathan M.
  • Li, Quan
  • Rahman, Aminur

Since the early 1990s, a large number of studies have been undertaken to understand the causes and consequences of corruption. Many of these studies have employed firm-level survey data from various countries. While insightful, these analyses based on firm-level surveys have largely ignored two important potential problems: nonresponse and false response by the firms. Treating firms'responses on a sensitive issue like corruption at their face value could produce incorrect inferences and erroneous policy recommendations. We argue that the data generation of nonresponse and false response is a function of the political environment in which the firms operate. In a politically repressive environment, firms use nonresponse and false response as self-protection mechanisms. Corruption is understated as a result. We test our arguments using the World Bank enterprise survey data of more than 44,000 firms in 72 countries for the period 2000-2005 and find that firms in countries with less press freedom are more likely to provide nonresponse or false response on the issue of corruption. Therefore, ignoring this systematic bias in firms'responses could result in underestimation of the severity of corruption in politically repressive countries. More important, this bias is a rich and underutilized source of information on the political constraints faced by the firms. Nonresponse and false response, like unheard melodies, could be more informative than the heard melodies in the available truthful responses in firm surveys.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4413.

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Date of creation: 01 Nov 2007
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Handle: RePEc:wbk:wbrwps:4413
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  1. Jakob Svensson, 2003. "Who Must Pay Bribes And How Much? Evidence From A Cross Section Of Firms," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 207-230, February.
  2. Fisman, Raymond & Gatti, Roberta, 2006. "Bargaining for Bribes: The Role of Institutions," CEPR Discussion Papers 5712, C.E.P.R. Discussion Papers.
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  5. Cheryl W. Gray & Daniel Kaufman, 1998. "Corruption and Development," World Bank Other Operational Studies 11545, The World Bank.
  6. Ray Fisman & Roberta Gatti, 2006. "Bargaining for Bribes: The Role of Institutions," Chapters, in: International Handbook on the Economics of Corruption, chapter 4 Edward Elgar.
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  9. Raymond Fisman & Edward Miguel, 2006. "Cultures of Corruption: Evidence From Diplomatic Parking Tickets," NBER Working Papers 12312, National Bureau of Economic Research, Inc.
  10. Escribano, Alvaro & Guasch, J. Luis, 2005. "Assessing the impact of the investment climate on productivity using firm-level data : methodology and the cases of Guatemala, Honduras, and Nicaragua," Policy Research Working Paper Series 3621, The World Bank.
  11. Roberta Gatti, 2004. "Explaining corruption: are open countries less corrupt?," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(6), pages 851-861.
  12. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  13. Regina Riphahn & Oliver Serfling, 2005. "Item non-response on income and wealth questions," Empirical Economics, Springer, vol. 30(2), pages 521-538, 09.
  14. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
  15. Micahael Tomz & Jason Wittenberg & Gary King, . "Clarify: Software for Interpreting and Presenting Statistical Results," Journal of Statistical Software, American Statistical Association, vol. 8(i01).
  16. Holmes, Thomas J & Schmitz, James A, Jr, 1996. "Nonresponse Bias and Business Turnover Rates: The Case of the Characteristics of Business Owners Survey," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(2), pages 231-41, April.
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